1 MARKING GUIDE SUBJECT NO: 8395F/8672D SUBJECT NAME: Commercial Law 1 EXAM DATE: 26 November 2003 NUMBER OF PAGES: - 10
8395F COMMERCIAL LAW 1 END OF YEAR FINAL EXAMINATION 2003 SUGGESTED SOLUTIONS FOR PART A & B MULTIPLE CHOICE QUESTIONS AND FOR PARTS C, D,E & F Students answered the multiple choice questions in Part A and B on separate answer sheets. The suggested answers for Part A and B are as follows:- PART A: Multiple choice ( 20 marks) Q1 (a) Q11 (a) Q2 (d) Q12 (d) Q3 (c) Q13 (c) Q4 (a) Q14 (c) Q5 (d) Q15 (d) Q6 (h) Q16 (c) Q7 (h) Q17 (b) Q8 (c) Q18 (c) Q9 (d) Q19 (a) Q10 (a) Q20 (b) PART B Multiple choice (Contracts) 20 Marks Q21 (c) Q31 (d) Q22 (c) Q32 (a) Q23 (c) Q33 (b) Q24 (d) Q34 (a) Q25 (b) Q35 (c) Q26 (a) Q36 (a) Q27 (b) Q37 (c) Q28 (d) Q38 (d) Q29 (b) Q39 (a) Q30 (a) Q40 (c)
PART C (Contracts) 20 Marks Answer 1(a) ( 5 marks) A "condition" is recognised as a very important part/promise in a contract that is usually essential to its existence. It is treated as being the basis upon which the contract was formed and without it the agreement would be totally different to what had been negotiated. If a condition is breached the common law views it as a serious breach and the innocent party may-he entitled to: - Terminate (rescind) the contract OR Claim damages for any losses resulting from the breach of the condition In some situations the innocent party is entitled to do both A "warranty" is a term in a contract that is looked upon by the law as being less important and is regarded as not being as essential as a condition. A contract may still exist if the warranty is broken or is removed. In the likelihood that a warranty is broken it is treated as a less serious breach and the legal rights of the innocent party are limited. They are entitled to claim damages for any losses caused by the breach but they have no legal rights to have the contract terminated. Whether a term is recognised as a condition or warranty will depend upon finding out what the parties themselves intended in their agreement The court may examine the wording of any written agreement, any statement the conduct of the parties and all surrounding circumstances to decide how important were each of the terms of their agreement Answer 1 (b) ( 5 marks) The nature of the agreement is business/commercial and it appears that prima facie, the written partnership agreement is legally binding on both brothers. (Edwards v Skyways). Mickey might argue their agreement was merely a family/domestic one. However, even if this was true, both brothers registered a business name and instructed their solicitor to prepare a written partnership agreement. These facts strongly suggest that both Mickey and Mousey intended their agreement to create legal rights and obligations between them.(wakeling v Ripley). Mousey could claim there is a contract and Mickey may be legally obligated to accept only 50%
The answer would be different if the agreement contained that clause. In Rose & Frank Co v Crompton Bros. Ltd a similar clause was inserted in a business agreement The court stated that the parties had expressly shown they did not intend their agreement to affect their legal relations. Even though the nature and effect of the agreement was business/commercial, the court recognised that parties to a business transaction were at liberty to provide that it was not meant/intended to be contractual. Even though the evidence suggests a business/commercial agreement the words expressed in the clause take away any intention of making a contract. Whilst Mickey may be morally obliged to work and take 50% he might not be legally obligated to this and Mousey is unable to claim contractual remedies. Answer 2 (a) ( 5 marks) It is unlikely that the store would be liable for breach of contract. The advertisement in its catalogue would probably be recognised as an invitation to treat (Boot's Cash Chemist Case) The store is not making an offer to sell the printer in the catalogue. The store is actually inviting customers who read the catalogue to make an offer to buy the printer for $150. The store can either accept or reject any such offer. On the facts there was a mistake about the price when the catalogue was printed and therefore the store refused to accept Kelly's offer to buy the printer for the price in the catalogue. There was an offer by Kelly but no acceptance by the store. Consequently, there was no agreement and without an agreement there cannot be a contract at common law. Kelly appears to have no legal rights to claim a breach of contract. Please note that the Trade Practices Act 1974 (Commonwealth) and other State legislation prohibits various types of unfair practices by corporations or other businesses in trade or commerce. The major unfair practice is misleading/deceptive conduct and the store might be liable for a breach of section 52 and other sections dealing with false statements/information about the price or quality of goods. Answer 2 (b) ( 5 marks) Aimee has made an agreement with Warren to buy office furniture for $17,500 Assuming all essential elements are present there is a legal binding contract (executory).an injunction is a remedy in equity. Equity will only supply remedies where there are no adequate ones at common law. In this problem Aimee might claim damages for any losses caused by Warren's broken promise. She can use the money to purchase other similar office furniture elsewhere and so damages would be an adequate solution for her. As a result, it seems unlikely Aimee would get an injunction to stop the sale to Cameron or any other remedy in equity.
However if Warren had contracted to sell Airnee all his expensive, rare and unique Italian antique furniture for $268,000 the answer might be different. There appears to be a valid agreement between the parties and assuming all other essential element are present it seems likely that they have a contract. Such personal property as rare and expensive antique furniture is not easily replaced and paying Aimee damages may not assist her in buying replacement furniture because of its expensive nature and being so rare and different. In fact, Aimee may simply want the furniture for its unique qualities and receiving money will not get her those personal items. In such a situation common law remedies are not proper/adequate for her and so equity may assist. She might be able to obtain 1 specific performance of the contract on the sale of the furniture and 2 an injunction to prevent the sale of the goods to Cameron. Specific performance will mean that Warren will be required to perform his promises to Aimee and transfer ownership of the antique furniture to her (provided she pays for it).the injunction will prevent Warren selling his property to Cameron (at least for a temporary period ) and this should give Aimee time to get specific performance. Answer 3 (10 marks) Basically, there are four (4) essential elements to be proved in negligence- 1. The defendant owed to the plaintiff a "duty of care" (Donoghue v Stevenson). In certain relationships such as doctor/patient, parent/child, employer/employee or accountant/solicitor/client the law has commonly recognised a duty of care to exist. In other situations a duty of care may arise where it was reasonably foreseeable that the defendant's conduct would cause harm/injury to the plaintiff. 2. The conduct of the defendant broke the standard of care required by the law. Traditionally the legal standard does not require anyone to be perfect but to act in a reasonable manner in the situation i.e. what is normally expected from a reasonable person in the circumstances. (Donoghue v Stevenson) 3. The careless conduct of the defendant was the cause of the harm suffered by the plaintiff. There must be some link between the negligence and the damage. This is referred to as causation (Grant v Australian Knitting Mills). The courts have used a common test called the but-for test to discover the true cause of the loss although it is not always suitable when there are intervening events that increase/accelerate the losses. 4. Damages/losses must be reasonably foreseeable. The courts will not require the defendant to pay any losses that are deemed to be "too remote (Wagon Mound No 1 case). This places limits on the amount/types of losses that may be paid by the defendant. Even if the elements are established, the defendant may partially or perhaps entirely escape liability where they can successfully argue the defences 1 Contributory negligence: where it can be shown the plaintiff was also careless to some degree and thereby was partly responsible for their own injuries/damages (may allow for reduction of damages from the defendant)
2 Voluntary assumption of risk: where it can be proved the plaintiff was fully aware of the risk and voluntarily accepted it (may totally excuse the defendant) The most common example is where a person voluntarily accepts a lift from an obviously drunken driver and is later injured in a car accident caused by the intoxicated driver. 3 Illegal enterprise The most likely remedy in negligence is DAMAGES to compensate for losses caused by the negligence. In some situations the court may also issue an injunction to prevent careless conduct continuing. Negligence is a tort that protects a person against careless conduct of others and its main remedy is damages. Defamation laws protect a person's reputation against unjust or unfair publication of defamatory material. In NSW defamation laws include both common law and the Defamation Act 1974(NSW) A plaintiff must show in a defamation claim that the defendant communicated to others material that identified the plaintiff and caused injury or harm to their reputation i.e. the material was defamatory. Subject to various statutory defences, the plaintiff has the remedy of damages but quite often can also get an injunction to prevent the conduct continuing. Answer 4 (a) (5 marks) Students must identify and explain any of the following three (3) conditions:- 1 Section 17 implied condition that the seller of any goods has the right to sell or will have that right at the time ownership is to pass 2 Section 18 implied condition that where goods are sold by description such goods must correspond with the description e.g a 180 cm Sony colour TV must satisfy that description when delivered to the buyer
3 Section 19(1) implied condition that where a seller is in the business of selling certain types of goods then such goods must be reasonably fit for the buyers purpose where the buyer has made known such purpose to the seller and relied upon the sellers skill or judgment in supplying them. (David Jones v Willis) 4 Section 19(2) implied condition that goods sold by description from a seller dealing in such goods must be of "merchantable quality"' The goods must be fit for purpose and must be in such condition as would be expected from any reasonable person having regard to price, purpose of goods and the surrounding circumstances. (Grant v AKM, Liaweena v McWilliams, David Jones v Willis) 5 Section 20 where a buyer conducts a purchase by relying on a sample there is an implied condition that the bulk of the goods will correspond with the sample and the buyer will have opportunity to compare both. e.g buying 1000 kilos of rice after inspecting a 1 kilo sample. Answer 4 (b) ( 5 marks) This auction is a contract for the sale of goods and the Act applies to it. There is a legal rule called "nemo dat" that adversely affects the transfer or personal property. It basically states that you cannot sell what you do not own and for a buyer this means a buyer of goods cannot get any better ownership of those goods than the seller had. However, the Act recognises a number of exceptions to this rule. One such exception is where there is a "sale by a mercantile agent" A common example is an AUCTIONEER. Jason is an auctioneer acting for Cheryl and he has possession of her car (with her consent) for the purpose of selling it. Such statutes as the Factors (Mercantile Agents) Act usually allow an agent in possession of goods to transfer ownership to an honest buyer for value even if the sale is not authorised or against instructions. Assuming Michael is an honest buyer and was unaware of the lack of authority, then ownership of the car has legally passed to him at the auction. He does not have to return the car to Cheryl. Cheryl may take action against her auctioneer for breach of contract. There does not appear to be anything in the Sale of Goods Act that would assist Michael in the second situation. Jason has stolen Cheryl's car and so he has unlawful possession. The nemo dat rule applies. Any person who later acquires the vehicle takes it with defects in ownership and gets no better right to the car than Jason (a thief). This is the situation even if a person purchased the car honestly (not being aware it was stolen) and for value. Unfortunately, even though Michael was an honest buyer and gave Jason $9,000 for the car he has no better right to the car than Jason. He must return the car to Cheryl. He could take legal action against Jason (the thief) if he could locate him.
ANSWER 5 (a) 5 Marks Price fixing: lies at the centre of anti-competitive conduct. Section 45 A prohibits any contract, arrangement or understanding between competitors that has the purpose of likely effect of fixing, controlling or maintaining prices for any goods/service Usually this means the parties agree upon prices to be charged or paid (TPC v TNT Pty Ltd). If the offence is proven the law assumes that there has been a reduction in competition and it is not necessary to prove it However it must be proved that the competitors made some sort of agreement between themselves and had the same intentions (TPC v Email) and (TPC v David Jones) Misuse of market power: where a corporation has a substantial amount of market power in a market for goods/services it is prohibited under section 46 from using such power in any of the following ways:- 1 Eliminate or cause major harm to a competitor 2 Prevent a person engaging in competitive conduct 3 Prevent entry of any person into the market Queensland Wire v BHP is a good example of the court finding BHP guilty of misusing its 85% share of the market to prevent QWI (a competitor) from effectively competing in the market for steel products. Resale Price Maintenance: this is the practice of fixing the minimum price of a commodity at different levels of distribution. A supplier of goods/services to a retailer may supply goods with a recommended retail price (e.g. $65) and if the retailer has a discretion to follow the prices or not then there is no illegality. However where a supplier pressurises (threatens) the retailer into not selling below a minimum price then the Act has been broken. An example might be where a supplier discovers the retailer has sold the products at $59 and then refuses to supply further goods unless/until the retailer stops discounting below $65. A good case example is Ron Hodgson v Westco Motors where the court found Westco in breach of section 48 because it had cancelled Ron's franchise after he sold their cars and parts below a minimum price Answer 5 (b) 15 Marks The business is a proprietary company and so it is covered by the Trade Practices Act The Act protects consumers by prohibiting various forms of misconduct in trade or commerce that can be identified as unfair practices These are contained in sections 51AA - 64. There are general prohibitions such as section 52 misleading/deceptive conduct that covers any form of misleading /deceptive conduct and then there are specific sections that target specific types of false statements or dishonest practices
1 False advertising of the $300 price is a breach of section 53 (e) that prohibits a company making false/misleading statements with respect to the price of their goods 2 Offering gifts/prizes to encourage purchase of computers is a breach of section 54 because the manager had no gifts or prizes and could not supply them. To establish this offence it must be proved on the balance of probabilities that the company never intended to comply with its promotional promises to supply the gifts/prizes. This seems clear enough on the facts. 3 On the facts, the company has advertised Australia as the place of origin of the scanner but in fact the scanner was manufactured in Indonesia. This is making a false/misleading representation concerning the place of origin of goods and is a breach of section 53 (eb) 4 The sign in the shop and on the receipts could be a problem to the company. It is telling customers that they have no rights to a refund. In many situations a customer has a legal right to return goods and obtain a refund when the goods are not fit for purpose or lack merchantable quality or are otherwise defective. By denying these rights in the sign and on the invoice the company is making false or misleading statements about the existence or extent of rights and remedies. It appears to be in breach of section 53(g). In Miller v Fiona's Clothes Horse the court found a retailer liable under section 53 for similar conduct and imposed fines for their false statements. The court recognised the shop was making false claims about the legal rights of its customers by their signs and receipts stating a no refund policy. It would seem that the marketing strategies would also all involve a breach of section 52 for misleading and deceptive conduct. This section is widely drafted and is intended as a catch-all section. It prohibits any form / type of conduct in trade and commerce that is misleading or deceptive or likely to be so. The company was engaged in trade and commerce when it advertised in the local newspaper. The words in the advertisement and on the company sign and receipts were incorrect and certainly misled or deceived customers or at the very least were likely to do so. On this basis the company has engaged in misleading/deceptive conduct in breach of section 52 The company is liable and where the manager has knowingly been involved in any of the breaches then the manager may also be personally liable and subject to similar remedies and penalties under the Act. The Act provides such remedies as 1 Fines for the company up to $1.1 million and up to $220,000 for individuals (except for a breach of section 52) 2 Corrective advertising
3 Undertaking TP Act compliance programs 4 Injunctions 5 Damages to anyone who has suffered loss/damage as a result of these practices 6 Termination/variation of any contracts between the company and customers. Please note that students are not expected to identify each subsection e.g. 53 (eb) It is sufficient if they mention sections 52, 53 and 54 and briefly identify what they cover. THIS IS THE COMPLETION OF THE SUGGESTED SOLUTIONS THE SOLUTIONS OFFERED ARE THE RECOMMENDED ANSWERS FOR EACH QUESTION BUT THEY ARE NOT NECESSARILY THE ONLY ANSWERS. TEACHERS MAY ACCEPT ANY ALTERNATIVES THAT THEY CONSIDER ARE VALID AND SUPPORTED BY RECOGNISED LEGAL PRINCIPLES