Legal Studies Essay: Assessments From Chapter 1 To Chapter 5.

Chapter 1

Question 1.1

Why was equity law developed and how does it operate as part of the common law legal system in Australia

Question 1.2

How does a tribunal differ from a court?

Question 1.3

In relation to a business dispute, what are the advantages of using alternative dispute resolution as compared to using the court system?

Question 1.4     

Using examples, explain what is meant by 'delegated' or 'subordinate legislation'. Why is this type of legislation particularly important in ensuing clients are properly advised about business compliance?

Question 1.5

Gerard is being tried for stealing $50,000 from his employer's business account. What standard of proof will be applied to his case? Why?

Achieving Contract Formation

Question 2.1

What is the fundamental difference between an agreement and a legally binding contract?

Question 2.2

Identify four contracts about which a client may seek advice from a financial services professional.

Question 2.3

Lucy is a client whose tax and business matters you have dealt with for some time. She has been married for 10 years to Desi but they are currently separated whilst they consider divorce. Desi runs his own separate business. They have entered into various private agreements during the life of the marriage concerning money. Lucy wants to know under what type of circumstances would a private agreement between a husband and wife be considered contractually binding.

Question 2.4

What is a 'letter of intent' and in what circumstances are such documents likely to be used?

Question 2.5

In what commercial situation may a client seek a letter of comfort? What three forms may it take? What is a 'letter of comfort'? Name a commercial situation where 'letters of comfort' are commonly used.

Question 2.6

Valentine then turns to pay for the bookcase, but Tristan says he has already sold it to Isolde for $5,000. Valentine is furious and says that she and Tristan had a contract and the bookcase was hers. Is Valentine correct? Give reasons for your answer.

Achieving Contract Validity

Question 3.1

A minor does not have the capacity to enter into a contract which will be enforceable against them, except in exceptional circumstances. Why? What are those exceptional circumstances?

Question 3.2

If a person who is intoxicated enters into a contract with another person will that contract always be voidable by the intoxicated person when they return to sobriety? Give reasons for your answer.

Assessment Activity

Question 3.3

Tom, a client who is a commercial builder, entered into a contract with Roger to undertake construction of an office building. Two months ago, Tom paid Roger $15,000 under a clause in their contract which required Tom to pay this sum if Tom's work breached the National Construction Code. Tom has just been informed that the clause of the Code he allegedly breached is invalid because of an inconsistency with environmental protection legislation. Can Tom recover his $15,000? Give reasons for your answer.

Question 3.4

A young couple wishes to take out a sizeable home loan and, at the insistence of the bank, your client, asks the husband's elderly Chinese parents to guarantee the loan. The parents have very limited spoken and written English. Under what circumstances would you advise your client, the bank, that they could successfully rely on this guarantee should the young couple default on their loan?

Question 3.5

In what relationship does the presumption of undue influence arise?

Identifying and Enforcing Rights and Obligations

Question 4.1

Why is it important to identify the ‘terms’ of a contract?

Question 4.2

What is a standard form contract? What is the difference between a commercial standard form contract and a consumer standard form contract? Use examples to explain your answer.

Question 4.3

Michele has undertaken an inventory of the electrical appliances throughout her business and discovers that some require cleaning and repair. Michele takes the appliances to Rolando the repairer, with whom she has not dealt before. Unfortunately, whilst the goods were waiting to be repaired, Rolando’s repair shop was burgled and the appliances stolen. Rolando refuses to accept liability for the loss and draws Michele’s attention to a small sign on the door leading into a back room of the shop which says “No liability for loss or damage to goods accepted under any circumstances”. Rolando points to these same words printed on the back of the receipt Michele was handed when she deposited the appliances for repair.

Question 4.4

What factors will the court consider when determining whether a representation made by one party during negotiations is an express or implied term of the contract?

Question 4.5

How would you explain to a client the effect of a signature on a contractual document? Would your explanation be different if one of the parties had not bothered to read the terms of the contract?

Question  4.6

Question 1.1

List three contractual transactions which are required by Australian legislation to be recorded in a written document.

Contractual Performance, Managing Termination and Breach

Question 5.1

In what circumstances can a third party (‘stranger’) to a contract be held liable in the event of a breach?

Question 5.2

In certain circumstances, rights can be assigned due to operation of law. List three circumstances where such assignment can occur.

Question 5.3

Paige is a financial consultant who has entered into a contract to work exclusively for Annie’s company for two years. Three months into the contract, Annie informs Paige that her services are no longer required because she wants to take the company in a different direction. Paige intends to sue Annie for damages for breach of contract. Explain the matters the court will take into account in assessing the measure of damages they will award Paige.

Question 5.4

Sheila entered into a domestic building work contract with Bruce to build her first home for $200,000 in six months. The contract set out that progress claims would be paid when the footings were poured, at completion of walls, at completion of roof cover, second fix carpentry and practical completion. All obligations are met until the progress claim for completion of the walls has been paid, after which Bruce becomes busy with other work and stops working on Sheila’s house, despite her protests. When no further work has been completed after a further six months, Sheila takes action for breach of contract against Bruce and hires another builder to complete the work. Sheila wants Bruce to pay back the first two progress claims.

Will she be successful? Give reasons for your answer.

Question 5.5

Now for some fun, complete the following crossword puzzle.

Across

1. An unforeseen event, the fault of neither party which makes it impossible for the contract to be performed.
2. A remedy to put the injured party in the position they would have been in if the contract had been properly performed.
3. A court order preventing someone from performing a specific act.
4. Where one party leads the other party to reasonably believe that they will not be insisting on strict performance of the agreed terms.
5. The concept that provides only the parties to the contract can enforce it.
6. A three party agreement whereby the original parties agree to discharge their contract in consideration of a new contract being entered into between one of the original parties and a third party.
7. When each party properly performs their contractual obligations and the contract is discharged.
8. Attempted performance.
9. A remedy that restores the parties to their pre-contractual position, nullifying the existing contract.

Contractual Agency

Question 6.1

Ginny works for the Poptop Makeup Shop. She signs a contract with Glamour Co. for a shipment of lipsticks to be stocked at Poptop. Poptop never agreed for Ginny to be their agent, but are thrilled with the deal she struck, and decide to stock the lipstick in accordance with the contract. Poptop has a change of heart after closer examination of the stock. They wish to withdraw from the contract and argue the contract is not enforceable by Glamour Co. because at the time of signing, Ginny was not Poptop’s agent.

Is the contract enforceable? If so, from what point in time?

Question 6.2

Question 1.2

Stephen appointed Daniel from Daniel’s Real Estate to sell his property. Because Daniel is too busy, he subcontracts the sale to Michael’s Real Estate, without Stephen’s permission. Has Daniel done anything unlawful?

Question 6.3

Explain how an agency relationship differs from that of an independent contractor.

Question 6.4

Which party (agent, principal or third party) would not be held liable for fraudulent misrepresentations where the agent acted outside their authority

Question 6.5

Joe, in his capacity as an agent for Silvio, is authorised to purchase cattle at a limit of $200 each.

Joe could not purchase the cattle at this price so he purchased in his own name, 400 cattle at $300 each. Subsequently Silvio conferred with Joe and agreed to ratify his act. Neither Joe nor Silvio will pay for the cattle when delivered. Who is liable?

Managing Risk: Negligence

Question 7.1

When Miriam turned 62, the laws concerning tax concessions to lump sum contributions to retirement savings and the purchase of investment property changed significantly, meaning the value of her investments has fallen by 40% and that she will have to keep working past 65. Miriam is devastated.

If Miriam sues Todd for negligence, will she be successful? Why or why not?

Question 7.2

What risk management practices would you advise a client to put in place in their business to minimise the likelihood of negligence occurring? Include in your answer the type of information you would need from the client to ensure your recommendations were relevant and commercially useful.

Question 7.3

Sadly, after six months, Fabo Furniture is losing money and Bao has lost the purchase price and more. A new branch of Ikea has opened across the road to one of the shops and that is why the original owners were selling. Bao discovers that this was common knowledge in the furniture business market and that Meng should have known this at the time, and that further, he gave his advice relying on financial information which was incorrect and out of date. Bao is furious.

What action, if any, could Bao take, against whom could she take it, why she may take it and the consequences of that action?

Question 7.4

Using examples, explain contributory negligence and how a defendant may use it as a defence.

Question 7.5.

What case introduced the concept of 'the good neighbour principle'? Explain the relevance of the good neighbour principle to common law duty of care.

Question 1.3

Consumer Protection Law

Question 8.1

Can omitting to provide information ever count as misleading or deceptive conduct? How would you explain this concept to a client?

Question 8.2

Are the complaints of the consumers justified? How would you explain this to your client and what advice would you give them to ensure they operate in compliance with the ACL?

Question 8.3

Anthea sold Bob some paper and pens for $65. Anthea did not give Bob a receipt. Has Anthea done anything unlawful?

Question 8.4

Marc is considering entering into a mobile phone contract with GreedyGuts Phones. He is upset to find out that within the contract, there is a term stating that if Marc defaults on payment of his monthly statement, there is a default fee that increases by 10% every day of default. Marc considers this extreme but the salesperson informs him that this contract is standard form and its terms are non-negotiable.

What argument could Marc make? Do you think he would be successful?

Question 8.5.

Sebastian is going camping in the snow and asks the sales assistant which sleeping bag would be the best for his requirements. He is advised that the SleepDry bag is the best but in fact he gets wet and cold while camping. Who would be responsible for his miserable camping trip: Sebastian, the manufacturer or the sales assistant? Do you need further facts to answer this question fully?

Choosing a Business Structure

Question 9.1

What kind of matters should be considered when deciding upon an appropriate business structure?

Question 9.2

Steven and Lamont have recently set up an accounting practice in partnership. They have prepared a written partnership agreement in which it states that any purchase over $1,000 shall only be made after both partners agree. Steven and Lamont purchased all their office furniture and equipment from Mack at OfficeStuff. Mack contacted Steven and offered the partnership a great deal on a computer package for $2,000. Lamont is out seeing clients and cannot be contacted. Steven goes ahead and purchases the computer package. When Lamont is informed he says the purchase is not valid and wants Mack to take the computer package back and refund their money. Mack refuses. Discuss the issues raised and the likely outcome of these circumstances

Question 9.3

Under what circumstances may company directors be held responsible for the debts incurred by the company?

Question 9.4

What are the advantages of trading as a sole trader?

Question 1.4

The Company, a Separate Legal Entity

Question 10.1

What is the significance of the cases of Saloman v Saloman (1897) AC 22 and Lee v Lee’s Air Farming Ltd (1961) AC 12?

Question 10.2

What is the principle on which a company limited by shares is formed?

Question 10.3

(a) What is the purpose of the Small Business Guide produced by ASIC?

(b) In what way can a proprietary limited company structure be used to reward employees?

(c) What is the maximum number of shareholders allowed for a proprietary limited company?

(d) Can the business continue to be called Trident Holdings? If not, what changes must be made?

(e) What is the difference between a small proprietary company and a large proprietary company?

(f) How may Ruprecht and Lawrence use the structure of the proprietary limited company to raise capital to grow the business?

(g) Why is a company structure beneficial for a business involved in export?

Question 10.4

What rules govern the internal management of a company? Can these rules be varied? If so, how?

Question 10.5

What information must appear on every public document signed or published on behalf of the company? On what other documents must this information appear?

Question 11.1

Outline the responsibilities and functions of the board of directors.

Question 11.2

How does a person become a member of a company?

Question 11.3

To what level of remuneration are directors entitled? Who has the power to decide on the remuneration of directors?

Question 11.4

Please read the Case study on ‘Court decisions lift director standards: ASIC'.  The case study can be located in the section titled 'Chapter 11 Review Questions'.

Please answer the following questions in relation to the Case study:

1. What is the prime objective held by ASIC in relation to recent court rulings?
2. List the recent penalties ASIC has secured.
3. Do you believe ASIC plays an effective role as a corporate regulator? Why/Why not?

Question 12.1

What is the difference between an unincorporated and an incorporated association?

Question 12.2

Briefly summarise the matters that should be addressed in the rules of an incorporated association.

Question 12.3

Lewis, the chairman of the committee of the Flemington Football Club Inc has also entered into a two year contract with GreatGrounds Gardeners, to maintain the football oval and grounds.

All went well for the first ten months, but despite providing their services, GreatGrounds Gardeners have now not received payment for three months. Who is liable for the debt owed to GreatGrounds Gardeners? Give reasons for your answer.

Would your answer be different if Flemington Football Club Inc was not an incorporated association? If so, how and why?

Question 13.1

What are the major commercial reasons that people choose to create and operate express trusts?

Question 13.2

Identify the following types of trusts?

1. The trust document confers on the trustee discretion to select who is in the designated class of potential beneficiaries is to receive any benefit and to decide the amount of any benefit to be paid.
2. The trust creates and grants to each beneficiary proprietary interests in the trust property or the income derived from that property. The trustee has no discretion regarding distribution of income and property.
3. The trust creates and grants to each beneficiary a fixed equitable interest in the capital and income of the trust calculated by reference to the proportion of units each beneficiary holds in relation to the total number of units issued.

Question 13.3

Peter has been appointed trustee of Nina's testamentary express trust. The trust document states that the trust applies to "...most of my estate, including my shares and two-thirds of my antique collection." It goes on to state that "half of the two-thirds of the antique collection is to be held for the grandchildren that loved me most". Can Peter fulfil the terms of Nina's trust?

Question 13.4

What law governs trustees?

Question 13.5

Is there any conduct by the beneficiary which may prevent them being granted an equitable remedy for breach of a fiduciary duty by the trustee?

Question 13.6

What are the only circumstances under which a trustee is not bound to carry out the terms of the trust instrument?

Question 13.7

How is the existence and continuity of a trust affected by the death of a beneficiary?

Why was equity law developed and how does it operate as part of the common law legal system in Australia?

The core reason why equity law was developed in Australia is to provide ‘fairness and good conscious’ which provides fairness in the cases where common law is unable to do so.

The way it’s operated a part of the common law legal system in Australia because the equity law provides a much broader context, it provides the recognition of relationships and being able to provide solutions that are unavailable under the common law. It provides alternative solutions that are not money based or money is inadequate to resolve a dispute or where technicalities would result in an unfair outcome for common law.

How does a tribunal differ from a court?

The difference howa tribunal differs from a court is that Tribunal is structured to play an important role in resolving specific disputes by giving power to tribunals to hear specific type of matters, for example Fair Work Commission. The aim for a tribunal is to implement a quicker process to resolve a dispute which ultimately is cost effective as there are less reliance on legal representation as appose to courts which requires legal action which costlier and time consuming compared to Tribunals. A court is structured in many different types (e.g Federal, Territory or State) depending on the case as tribunal is a simple format that is only specialised in e particular matter while Tribunals only deal with Federal or State matters. Tribunals are also set up under the executive branch rather than the court being set up by the Judiciary and are adjudicated by a referee who does not have to be a legal expert while the court it’s required by an legal expert.

In relation to a business dispute, what are the advantages of using alternative dispute resolution as compared to using the court system?

The advantages of using alternative dispute resolution compared to the court system are as follows

Alternative dispute resolution is confidential of the dispute, issues and the outcome between two parties or business’s while in courts it’s not confidential regarding the dispute, issues and outcome of the case.

Process is quicker by using the alternative dispute resolution compared to the court which is ideal for business’s as it’s resolves the process quicker and avoids business’s being time consumed on the matter.

Alternative dispute resolution is less costly and formal compared to a court which is ideal for business’s as it reduces the business expense for both parties compared to a court which would be costlier.

Assessment Activity

Alternative dispute resolution provides the two parties control of the process for which two business’s control the process which generally gives an outcome that satisfies both business’s while to a court the judge has full control of the process.

Using examples, explain what is meant by 'delegated' or 'subordinate legislation'. Why is this type of legislation particularly important in ensuing clients are properly advised about business compliance?

Delegated legislation is best described where a Parliament delegates their legislation making powers to an Executive Body which results in the regulation of government departments, statutory bodies and by law of local councils.

This type of legislation is important in ensuring clients are properly advised about business compliance because it provides regulations which are extremely important to business compliance because they are often the part of legislation which gives the fine and concentrate detail to the general principles set out in the relevant act.

An example is regulations which accompany State work, Health and Safety Acts set out to the dine detail of conduct required to keep workers safe. There is a difference in requirement to keep an accountant working in an office safe rather then what is required to keep a nurse or kitchen hand safe.

Gerard is being tried for stealing $50,000 from his employer's business account. What standard of proof will be applied to his case? Why?

The standard of proof which would be required in this case would be that the employer has to prove to the point where no uncertainty exists or beyond any reasonable doubt that Gerard has indulged in stealing. The burden of proof would be on the employer. This would be the case as this is a question of criminal law and not civil law.

Achieving Contract Formation

What is the fundamental difference between an agreement and a legally binding contract?

The fundamental difference between an agreement and legally binding contract is simply that an agreement contract is an arrangement between two or more parties that is not enforceable by law while a legally binding contract is a formal arrangement between two and more party that is by terms and elements is enforceable by law.

Identify four contracts about which a client may seek advice from a financial services professional.

Simple Contract

Express Contract

Formal Contract

Bilateral Contract

Lucy is a client whose tax and business matters you have dealt with for some time. She has been married for 10 years to Desi but they are currently separated whilst they consider divorce. Desi runs his own separate business. They have entered into various private agreements during the life of the marriage concerning money. Lucy wants to know under what type of circumstances would a private agreement between a husband and wife be considered contractually binding.

Question 1.1

The main element to determine that there is a binding contract between husband and wife is to determine whether intention was present during the formation of contract. Generally like it is presumed that commercial agreemnts contain intention, social and domestic agreement are presumed not to have any intention. However not all domestic agreements are regarded not to have intention. Intention in domestic agreements is determined through the use of objective test and presence of consideration in a few cases. There have been cases like Merritt v Merritt where it was held that the agreement between husband and wife is legally binding. In the case of in the case of parker v clark it was found that if not enforcing the domestic agreement would bring immense hardship for one of the parties than the agreement should be enforceable. In the case of simpkins v pays 1955 it was ruled by the court that if an outsider is linked to the contract intention is deemed to be present. Thus Lucy can make claims in relation to written agreemnts, agreements involving third parties and agreements having drastic effects on her life.

What is a 'letter of intent' and in what circumstances are such documents likely to be used?

A letter of intent is a non-binding summary of the proposed terms of the contract contemplated by the parties which is an agreement to agree. It’s used as a stepping stone which outlines the plans between the parties to later formalise their agreement into a contract.

Generally, these documents are implemented under the following circumstance

• To obtain a preliminary agreement on the matter before details are worked out.
• To establish confidentially of elements being negotiated
• To agree on how detailed negotiations will proceed

Please refer to Masters v Cameron (1954) 01 CLR 353

In what commercial situation may a client seek a letter of comfort? What three forms may it take? What is a 'letter of comfort'? Name a commercial situation where 'letters of comfort' are commonly used.

Generally, a client may seek a letter of comfort those working the section of the financial services industry that deals with loans.

The three forms a letter of comfort may take are the following circumstances

• An undertaking to maintain the parent’s company financial commitment in the subsidiary
• An agreement whereby the parent company undertakes to use its influence to ensure the subsidiary meets its obligations
• It may be nothing more than an acknowledgement by the parent company that the subsidiary has entered into a contract.

A letter of comfort is simply an assurance about a debt, short of a legal guarantee that is given by a bank of a third party.

A scenario where ‘letters of comfort’ are commonly used is when a company deals with commercial credit and loans which banks request for a guarantee from both the parent and the subsidiary company requesting the loan which ensures that the lender has access to the assets of the corporate group should the subsidiary default on the loan, generally the parent company refuses to be a guarantor because for policy reasons or because they want to maintain a balance sheet, therefore the compromise position is the provision a ‘letter of comfort’ is created. These letters of comfort can be enforced by the following scenario Prohibition of misleading and deceptive conduct, the law of ‘promissory estoppel’ and unfair and unreasonable conduct.  Please refer to Gate Gourmet Australia Pty Ltd (in Liq) v Gate Gourmet Holding AG (2004) NSWSC 149

Question 1.2

Valentine spotted a lovely Blackwood bookcase in an antique shop owned by Tristan, which had a price tag of $5,000. Valentine approaches Tristan and tells him she will take the bookcase for $3,000. Tristan says that isn't possible but how about $4,000? Valentine says no, how about $3,500? Tristan says no to which Valentine replies that she will accept Tristan's offer of $4,000. Tristan does not reply but turns to serve another customer Isolde, as Valentine steps away from the counter to take a call on her mobile phone.

Valentine then turns to pay for the bookcase, but Tristan says he has already sold it to Isolde for $5,000. Valentine is furious and says that she and Tristan had a contract and the bookcase was hers. Is Valentine correct? Give reasons for your answer.

Based on the case scenario above Valentine is incorrect as there was no contract between the two parties, the following reasons apply.

When Tristan offered to sell their bookcase to Valentine for $4,000 she rejected the offer by replying no which indicates the offer has been rejected by Valentine therefore no contract has been agreed.

Once the offer is rejected it cannot be offered again to the buyer/offeror unless Tristan offered Valentine the bookcase for $4,000 twice for which she didn’t which indicates that the acceptance was not made by Valentine at the time of the offer.

Valentine indicated that she would agree to pay the $4,000 after she rejected it at the time of the sale. However the offer has expired as Tristan did not agree by verbal/written communication that she would accept the offer and while Valentine was on the phone during the period which Tristan has every right to sell the contract as the offer assumed that her offer of $4,000 was rejected by Valentine as she declined the offer for which it states that acceptance cannot be revoked without the consent of the offeror for which Valentine revoked the offer by saying ‘no’ to the offer of $4,000 by Tristan at the point of sale and has every right to sell the bookcase to another party.

Achieving Contract Validity

A minor does not have the capacity to enter into a contract which will be enforceable against them, except in exceptional circumstances. Why? What are those exceptional circumstances?

The reason why a minor does not have the capacity to enter a contract which will be enforced against them is because a minor (under the age of 18 years old) is inexperience in commercial matters for which the laws protects the minor from making imprudent decisions or falling prey to more commercially astute adults who can take advantage of minors by manipulating them into a contract.

Question 1.3

However, there are exceptional circumstance where a contract will be enforceable against them which includes

• Cash of contracts
• Contracts for the supply of necessaries: Which includes goods and service minors is accustomed to having in their life which include food, clothing, accommodation, medical treatment and education for example.

See case Nash v Inman (1908).

• Beneficial contracts of service: Which is a contract of service is a contract of apprenticeship, training, education or employment which, when all the terms are the benefit of the minor.

See Proform Sports v Proactive Sports (2007)

If a person who is intoxicated enters into a contract with another person will that contract always be voidable by the intoxicated person when they return to sobriety? Give reasons for your answer.

This is correct, the contract would be invalid if the person agrees the contract for non-necessary items while intoxicated. The person that is intoxicated must prove the following circumstances for the contract to be voidable.

• The person can prove that he/she did not understand what they were doing as a consequence of their condition
• The other party was aware that the person was intoxicated.
• They withdraw the contract from a reasonable time before they become soba again.

An example if a person had a stamp collection worth a certain figure ($10,000) and was intoxicated at a party and decided to sell the stamp collection for $5,000. If the person, the next day refuses to sell the stamp collection when they return soba. Can argue of the following point above that the contract is voidable.

However, if a person is intoxicated and has entered a contract for necessary items (food or medicine) the contract will be valid under a reasonable price must be charged for these items

Tom, a client who is a commercial builder, entered into a contract with Roger to undertake construction of an office building. Two months ago, Tom paid Roger $15,000 under a clause in their contract which required Tom to pay this sum if Tom's work breached the National Construction Code. Tom has just been informed that the clause of the Code he allegedly breached is invalid because of an inconsistency with environmental protection legislation. Can Tom recover his $15,000? Give reasons for your answer.

If a contract is illegal it cannot be enforced by law. In case the contract is barred by a statue than the intent of the parties is irrelevant and even if they did not want to breach thelaw the contract would be unenforceable. In this case the guilty party has no right to enforce the contract but the innocent party may avoid the contract or gain compensation in case the consideration is illegal. In the provided circumstances the consideration of $1500 against the breach of an invalid clause is illegal. Thus Tom has the right to recover the amount.

A young couple wishes to take out a sizeable home loan and, at the insistence of the bank, your client, asks the husband's elderly Chinese parents to guarantee the loan. The parents have very limited spoken and written English. Under what circumstances would you advise your client, the bank, that they could successfully rely on this guarantee should the young couple default on their loan?

Question 1.4

In order to form a valid contract the consent of the parties is one of the essentials. The parties to the contract have to understand the term in order to give consent to it. However if a clause is signed by the parties to the contract and if it has not been included through any fraud or misrepresentation the clause is binding on the parties. Thus in this case the bank has to assure that the elderly guarantors are aware of the clause and no misrepresentation and fraud is involved in the consent.

In what relationship does the presumption of undue influence arise?

A presumption of under influence comes into existence in case there is a relation of confidence and trust between the parties where one party could carry out the affairs of the other. The concept was discussed in the case of Birmingham City Council v (1) Janet Beech (sued as Janet Howell) (2) Michael Beech [2014] EWCA Civ 830. To make it simple when a person has the power to take advantage because of his position in relation to another person the latter is said to be under influence of the former.

Identifying and Enforcing Rights and Obligations

Why is it important to identify the ‘terms’ of a contract?

The clause which a contract contains are known as its terms. Various terms are consisted in a contract. Even very simple contract have terms. The terms of a contract can be both expressed and implied. Expressed terms are those which are agreed in a written or oral manner. Whereas the implied terms are those which are just and obvious. It is important to identify implied terms because they are not identified easily but a party can be held liable for its breach. An example of an implied term is the duty to take care of a car in parking lot. Implied terms cannot be evaded through exclusion clauses. A term has to be differentiated from a sales puff which is no binding effect. Terms are different from representations thus it is important to distinguish between them. Terms can be distinguished from mere representation by considering four factors. These conditions are the parole evidence rule, time, importance of statement and expertise of parties. Representation have no legal effect as compared to terms thus they have to be identified.  The terms of a contract are divided into conditions, warranties and innominate terms.  Warranties are less important terms of the contract and a breach of warranties may only result in compensation or damages to the aggrieved party. Conditions are the most important terms of the contract and in case conditions are breached the contract can be rescinded by the aggrieved party. Thus it is important to identify and distinguish the terms of the contract in order to gain proper remedies.

Question 1.5

What is a standard form contract? What is the difference between a commercial standard form contract and a consumer standard form contract? Use examples to explain your answer.

A Standard form of contract is when almost all the terms of a contract are set by one party only and the other party does not has capacity to have any negotiation on the terms the contract exists on a take it or leave it basis.

Consumer standard forms of contract are those which occur between the buyer and the seller where the buyer has no right to bargain for the type of good they wasn’t. An example of a consumer standard form of contract is where goods are purchased from a fixed price shop buy the buyer.

Whereas Commercial Standard form of contracts take place between business entities where one party does not have the right to bargain. Ambiguity and the burden of justifying whether the term is fair or not is on the party incorporating it. Usually the terms of the contract are interpreted in favour of the party who had no role in making the terms.

Michele has undertaken an inventory of the electrical appliances throughout her business and discovers that some require cleaning and repair. Michele takes the appliances to Rolando the repairer, with whom she has not dealt before. Unfortunately, whilst the goods were waiting to be repaired, Rolando’s repair shop was burgled and the appliances stolen. Rolando refuses to accept liability for the loss and draws Michele’s attention to a small sign on the door leading into a back room of the shop which says “No liability for loss or damage to goods accepted under any circumstances”. Rolando points to these same words printed on the back of the receipt Michele was handed when she deposited the appliances for repair.

Is Rolando correct in his refusal? Give reasons for your answer.

An exclusion clause is a term included in the contract so that a person can evade his liability which would have been there otherwise. Exclusion clauses are valid unless they are contradictory to any existing legislations or provisions of common law. They also are not valid if it has not been conveyed properly to the other party. Thus in this case Rolando is not correct as the civil liability acts do not allow to evade the liabilities and moreover it was in such position where Michele could not see it. Thus the exclusion clause is not valid.

Chapter 2

What factors will the court consider when determining whether a representation made by one party during negotiations is an express or implied term of the contract?

An expressed term is a clause which is incorporated by the parties through mutual consent either orally or in writing. The existence of these terms can only be challenged on the basis of inconsistency with legal provisions. Whereas implied terms are those terms which are not expressly agreed by the parties however they are present as the court thinks that they are obvious and necessary rather than just and equitable.

How would you explain to a client the effect of a signature on a contractual document? Would your explanation be different if one of the parties had not bothered to read the terms of the contract?

Give reasons for your answer.

A signature on the contract binds the parties to its terms according to common law. It is also provided by common law that the parties are bound to the terms of the contract even if they did not know about it unless the signature has been attained through misrepresentation or fraud on the part of the other party.

List three contractual transactions which are required by Australian legislation to be recorded in a written document.

Contract of guarantees

Contract for sale of Land

Consumer contract- transaction involving credit code.

Contractual Performance, Managing Termination and Breach

In what circumstances can a third party (‘stranger’) to a contract be held liable in the event of a breach?

A stranger has no right to a contract he cannot sue or be sued in relation to the terms of the contract. This doctrine is known as the privity of contract. However there are certain circumstances in which a third party (beneficiary) can make a claim or be held liable if the contract is breached.

Firstly, it is analysed by the court that whether the third part has agreed to pay the debt of the party to the contract in any way.

Secondly, if there are any benefits arising out of the contract in relation to the third party. However the third party in this case must be an intended beneficiary rather than an incidental beneficiary.

Some form of contracts where a their party can be held liable are

1.Agency

2.Trusts

3.Estoppels

4.Unjust enrichment

In certain circumstances, rights can be assigned due to operation of law. List three circumstances where such assignment can occur.

Achieving Contract Formation

Assignment in contract law is a process where the rights and obligations of a party is transferred to a third party by him. Assignment can be voluntary if not limited by the contract or through the operation of law. Circumstances in which assignment of rights occur due to the operation of law are:

When a tenant passes his right to a subtenant

When an agent enters into a contract with the third party

Paige is a financial consultant who has entered into a contract to work exclusively for Annie’s company for two years. Three months into the contract, Annie informs Paige that her services are no longer required because she wants to take the company in a different direction. Paige intends to sue Annie for damages for breach of contract. Explain the matters the court will take into account in assessing the measure of damages they will award Paige.

In order to assess the damages the court would take into account the position of Paige which he would have been if his contractual rights have not been breached by Annie or when the contract would have not taken place at all. Thus the court. The loss which is faced by the innocent party has to be reasonable and must not be very remote. The court would provide damages if punitive damages is not applicable.

Sheila entered into a domestic building work contract with Bruce to build her first home for $200,000 in six months. The contract set out that progress claims would be paid when the footings were poured, at completion of walls, at completion of roof cover, second fix carpentry and practical completion. All obligations are met until the progress claim for completion of the walls has been paid, after which Bruce becomes busy with other work and stops working on Sheila’s house, despite her protests. When no further work has been completed after a further six months, Sheila takes action for breach of contract against Bruce and hires another builder to complete the work. Sheila wants Bruce to pay back the first two progress claims.

Will she be successful? Give reasons for your answer.

In the give circumstance Sheila only has the right to rescind the contract with Bruce. She has the right to rescind the contract as Bruce has made an anticipatory breach of contract. Bruce is not performing his obligations under the contract. However according to the doctrine of damages the court would only provide damages to Sheila for what she has lost. In this case two progresses have already been completed by Bruce and sheila would not have to pay for them to the new builder.

Question 2.1

Now for some fun, complete the following crossword puzzle.

Across

1. An unforeseen event, the fault of neither party which makes it impossible for the contract to be performed.
2. A remedy to put the injured party in the position they would have been in if the contract had been properly performed.
3. A court order preventing someone from performing a specific act.
4. Where one party leads the other party to reasonably believe that they will not be insisting on strict performance of the agreed terms.

Down

1. The concept that provides only the parties to the contract can enforce it.
2. A three party agreement whereby the original parties agree to discharge their contract in consideration of a new contract being entered into between one of the original parties and a third party.
3. When each party properly performs their contractual obligations and the contract is discharged.
4. Attempted performance.
5. A remedy that restores the parties to their pre-contractual position, nullifying the existing contract.

Contractual Agency

Ginny works for the Poptop Makeup Shop. She signs a contract with Glamour Co. for a shipment of lipsticks to be stocked at Poptop. Poptop never agreed for Ginny to be their agent, but are thrilled with the deal she struck, and decide to stock the lipstick in accordance with the contract. Poptop has a change of heart after closer examination of the stock. They wish to withdraw from the contract and argue the contract is not enforceable by Glamour Co. because at the time of signing, Ginny was not Poptop’s agent.

Is the contract enforceable? If so, from what point in time?

According to the principles of agency if a party is induced by any act of the principle denoting that the agent is in a principle agent relationship with them than the contract entered upon  by the party with the agent id binding on the principle. In the provided scenario Ginny working for Poptop Makeup shop is enough to provide a representation to Glamour Co that she was the agent of Poptop. Thus according to the principles of agency the contract is enforceable as soon as Genny entered it with Glamour Co.

Stephen appointed Daniel from Daniel’s Real Estate to sell his property. Because Daniel is too busy, he subcontracts the sale to Michael’s Real Estate, without Stephen’s permission. Has Daniel done anything unlawful?

Assignments of rights in contract is lawful. However such right has to be provided to the parties to the contract through the contractual terms. If the terms of the contract provides for assignment or provides the other party to consent for assignment then the assignment is possible. However if the other party has not assented to the assignment then the party has no right to assign his right.

Thus in this case Daniel who has been appointed by Stephen to sell his property cannot transfer his rights and obligation to Michael without the permission of Daniel.

Explain how an agency relationship differs from that of an independent contractor.

An agent is a person who works on behalf of the principle.  I may also be a business who has been given the power to act on behalf of another business or person. On the contrary an independent contractor is a person who merely provides his service to another person or business. He is neither an employee nor he has the right to work on behalf of the business or person.

Question 2.2

A principle has to take responsibilities for the acts committed by any of his or her agents. However, a person cannot be liable for the actions of an independent contractor.

An example of agent and principle are Manufacturer and Retailer. Whereas, an example of independent contractor is when company outsources its operations.

Which party (agent, principal or third party) would not be held liable for fraudulent misrepresentations where the agent acted outside their authority?

According to the common rule when an agent commits fraud or misrepresentation within the scope of authority provided to them by the principle than the principle is liable for its actions. However in case the agent’s acts outside the scope of authority the principle would still be liable for actions of the agent. However the principle has the right to make a claim against agent in this case. There is no liability on the their party

For example if B an agent of A gets into a contract with X through misrepresentation then the contract would still be binding on A and X would not be liable to misrepresentation. .

B the Driver of X induces C to get into a contract to purchase X’s property through misrepresentation then X is liable to B’s actions. However he can claim damages from B directly but no C.

Joe, in his capacity as an agent for Silvio, is authorised to purchase cattle at a limit of $200 each.

Joe could not purchase the cattle at this price so he purchased in his own name, 400 cattle at $300 each. Subsequently Silvio conferred with Joe and agreed to ratify his act. Neither Joe nor Silvio will pay for the cattle when delivered. Who is liable?

According to the rules of Agency, the actions of the agents are binding upon the principle. Even if the agent acts outside the authority provided by the principle, the principle cannot evade his liability as provided in the case of Consolo v Bennett [2012] FCAFC 120. In this case although the limit imposed on Joe by Silvio had been breached Silvio is liable to pay for the cattle as the seller has been induced because of the representation. Although in this case Joe has purchased the cattle in his own name Silvio will be held liable to the payment as the contract was formed due to the apparent authority which Joe has with respect to Silvio. Further in this case Silvio can claim any damages which would be suffered by him in relation to the cattle contract.

Question 2.3

Managing Risk: Negligence

Todd, a financial adviser, provided expert professional advice to Miriam, (aged 59) on how to invest a large inheritance she had received to best utilise superannuation and investment property tax concessions. Having worked full time since she was 18, Miriam was looking forward to a secure retirement. When Miriam turned 62, the laws concerning tax concessions to lump sum contributions to retirement savings and the purchase of investment property changed significantly, meaning the value of her investments has fallen by 40% and that she will have to keep working past 65. Miriam is devastated.

If Miriam sues Todd for negligence, will she be successful? Why or why not?

A matter related to negligence comes into the contracts when a duty of care owed is breached and harm is caused. When the actions are related to a professional then the actions are compared to the actions of a professional not a reasonable person to determine breach.

In the provided circumstances as Todd his a financial advisor his actions would be compared to a professional advisor in order to determine whether he has breached his duty or not. It has been provided by the scenario that tax patterns changed after three years from the day the advice was provided. Thus it can be concluded that it was not foreseeable even for an expert to analyse that tax patterns would change and Todd provided the correct advice at the time it was provided.

Thus Miriam would not be successful in her claim for the above mentioned reasons.

What risk management practices would you advise a client to put in place in their business to minimise the likelihood of negligence occurring? Include in your answer the type of information you would need from the client to ensure your recommendations were relevant and commercially useful.

The information which would be required from the client would be the nature of the business and the risk of harm associated with it in order to provide the clients the best advice towards risk management in negligence. The types of risks which can occur within the business with respect to negligence have to be identified as a first step of risk management. Then there are a few options available for the business in relation to the identified risks. Firstly, risks can be reduced by finding and fixing the source from which the risk can be created. For example taking reasonable care in the areas with respect to with negligence might originate. Secondly, Risk can be transferred using exclusion clauses, however the use of such clause have to be done in compliance of legal provisions. Controlling the risk is also an option for the businesses such as placing signs and cautions from which risks can be avoided.  Fourthly businesses may have in place an insurance such as the public liability insurance. This kind of insurance protects the businesses from financial risks related to negligence. This kind of insurance cover actions such as death or injury due to negligence, negligent advice, nervous shocks, property damages and pure economic losses.

Question 2.4

Bao is interested in owning and operating a furniture business and seeks the advice of 'Dependable Business Advisers'. Meng is appointed as her adviser and after some discussion and research Meng recommends Bao purchase 'Fabo Furniture' which already has two successful outlets and is poised for expansion and a very successful future. The purchase price is $800,000 and Bao excitedly proceeds.

Sadly, after six months, Fabo Furniture is losing money and Bao has lost the purchase price and more. A new branch of Ikea has opened across the road to one of the shops and that is why the original owners were selling. Bao discovers that this was common knowledge in the furniture business market and that Meng should have known this at the time, and that further, he gave his advice relying on financial information which was incorrect and out of date. Bao is furious.

What action, if any, could Bao take, against whom could she take it, why she may take it and the consequences of that action?

In the provided scenario Bao is eligible for taking an action of professional negligence against Meng.

She is eligible to take such actions against Meng because Meng being a professional had provided her with a negligent advice related to the business which she was hired to work for.

In this case Bao is entitled to claim the loss she has suffered from Meng due to the professional negligent advice provided by her.

Using examples, explain contributory negligence and how a defendant may use it as a defence.

Contributory negligence is a principle through which a wrongdoer may defend the claim made against him. The doctrine of contributory negligence protects the wrongdoer if the harm caused to the plaintiff was due to his own actions. The court determines the amount of contribution made by the plaintiff himself towards the damage caused so as to proportionate damages.

For example B went to the shop of A where the floor was wet and she slipped and thus broke her hand. It was fund that she had been texting while walking and did not see the prominent wet floor. Thus B has committed contributory negligence and A may use it to either minimise or abolish B’s claim according to the circumstances.

What case introduced the concept of 'the good neighbour principle'? Explain the relevance of the good neighbour principle to common law duty of care.

Question 2.5

The Good neighbour principle had been provided by the case of Donoghue v Stevenson AC 532. According to the principle of this case a person should be a good neighbour and must not commit any actions which may foreseeably harm his neighbours. In other words a person has a duty of care towards any person who can reasonably be harmed because of his actions.

Consumer Protection Law

Can omitting to provide information ever count as misleading or deceptive conduct? How would you explain this concept to a client?

Yes, according to the Australian consumer law not providing the consumers the related information about the product that might reveal its true nature accounts to misleading and deceptive conduct. The provisions related to this rule have been provided in the section 18(1) of the Australian consumer law. It works like the doctrine of misrepresentation and deceit in the law of torts. A conduct is said to be misleading only when it can be shown that there is a reeal chance that it has been done to deceive the consumer and not a remote chance.

A client contacts you having received several complaints about the manner in which they are advertising their prices. The client operates a bike shop, and they have been advertising bikes for $300. In reality the full price a consumer has to pay is $330 because of GST. Your client has presumed a customer will simply imply this and add it to the price.

Are the complaints of the consumers justified? How would you explain this to your client and what advice would you give them to ensure they operate in compliance with the ACL?

It is compulsory in Australia in relation to public advertisements according to the provisions of section 18 of the ACL that the advertised price must include GST. If the price is not inclusive of GST t might be taken as a misleading conduct on the part of the seller to mislead the consumers. Thus the received complaints are justified as per the ACL provisions. The client must include GST in the price or clearly state that the price is exclusive of GST in the advertisement in order to comply with the ACL provisions.

Anthea sold Bob some paper and pens for $65. Anthea did not give Bob a receipt. Has Anthea done anything unlawful?

According to the Australian Consumer Law it is the duty of every business to provide a receipt mandatorily in case the goods are valued over $75. However if the goods are not above $75 the consumers have full rights to ask for receipt which needs to be provided to the consumer within 7 days. Here Anthea has no commited anything unlawful but she must provide the receipt if Bob asks for it.

Question 2.6

Marc is considering entering into a mobile phone contract with GreedyGuts Phones. He is upset to find out that within the contract, there is a term stating that if Marc defaults on payment of his monthly statement, there is a default fee that increases by 10% every day of default. Marc considers this extreme but the salesperson informs him that this contract is standard form and its terms are non-negotiable.

What argument could Marc make? Do you think he would be successful?

The terms of a standard form of contract in Australia are generally dealt under the provisions of the unfair terms as per the Australian consumer law. Unfair terms are those terms which provide the consumers no or little bargaining power in relation to the contractual terms. Standard form of contracts have been initiated to increase the efficiency of businesses however consumer rights have to be taken into account in order to implement such contracts. A term in a contract is unfair or not can be determined through analysing the existence of a significant imbalance between the parties, the term not necessary to protect legitimate interest, the term I detrimental and the term is unclear.

In the given circumstance the term introduced by GreedyGuts phones is clearly an unfair term in relation to te contract as it is providing a significant imbalance between the bargaining power of Marc and Greedy. The term is also more than to merely protect a business interest and is certainly going to bring detriment to Marc. Thus Marc can argue that the term is unfair according to law.

Sebastian is going camping in the snow and asks the sales assistant which sleeping bag would be the best for his requirements. He is advised that the SleepDry bag is the best but in fact he gets wet and cold while camping. Who would be responsible for his miserable camping trip: Sebastian, the manufacturer or the sales assistant? Do you need further facts to answer this question fully?

In the provided scenario based on the given facts it can be said inevitably that the sales assistant would be liable for the loss suffered by Sebastian. As Sebastian relied on the advice made by the assistant in order to purchase the goods and the goods were not of a particular standard Sebastian would be entitled to the loss faced by him along with the refund of related to the sleeping bag. However if the bag was used in a way which has not been prescribed by the consultant or the manual of the bag then Sebastian would not be entitled to any claim.

Chapter 3

Choosing a Business Structure

What kind of matters should be considered when deciding upon an appropriate business structure?

There are four types of business structures

• Sole trader
• Company

1.Public

2.Private

• Partnerships
• Trust

A sole trader has full liabilities in relation to the business along with supreme control over the affairs of the business.

A partnership also has full liabilities in relation to the business but the control is divided among the partner

A company is a separate legal person and its identity is different from its owners. It is costly to form but its members have limited liability and less control over the affairs. Companies are public companies which are larger can undertake public investments and private companies which are smaller which can undertake limited public investments.

In order to decide upon an appropriate business structure the matters which needs to be considered are:

Control: the amount of control desired over the business

Liability: the degree of protection needed in the business

Cost and formation: the required cost and difficulty in formation

Future needs and flexibility: whether or not expansion is needed

Tax structure: The amount of tax payable

Existence: for how long the business is to be continued.   

Steven and Lamont have recently set up an accounting practice in partnership. They have prepared a written partnership agreement in which it states that any purchase over $1,000 shall only be made after both partners agree. Steven and Lamont purchased all their office furniture and equipment from Mack at OfficeStuff. Mack contacted Steven and offered the partnership a great deal on a computer package for $2,000. Lamont is out seeing clients and cannot be contacted. Steven goes ahead and purchases the computer package. When Lamont is informed he says the purchase is not valid and wants Mack to take the computer package back and refund their money. Mack refuses. Discuss the issues raised and the likely outcome of these circumstances

A partnership agreement acts like the constitution of the partnership. All actions of the partners are authorised through the agreement. However the partners may adopt the principle of flexibility in relation to the agreement. As a general rule the partners of the firm act on behalf of the firm and liable for each other’s actions during the course of business. According to section 12 of the partnership act 1963 if the partners have agreed that restrictions are applicable in relation to the powers of the partners to make the firm liable to their acts, an act which is not according to such agreement has no binding effect on the firm.  Section 23 of the PA provides that the partners can vary their rights relating to the partnership agreement with the consent of each other. Thus in this case as the rules of partnership has been changed by the consent of Steven and Lamont and the act committed by Lamont is against the agreement the act would not be binding on the firm.

Under what circumstances may company directors be held responsible for the debts incurred by the company?

The directors of the company are protected through the concept of limited liability and the corporate veil. This means that they are only liable to the amount invested by them in the shares of the company. However this corporate veil can be pierced by the court in certain circumstances which may make the directors of the company liable personally to the creditors. The primary situation in which the creditors can make a direct claim against the directors for the debt incurred by the company is in the case when the purpose for which the company had been incorporated was itself fraudulent in nature. The directors had the sole purpose of defrauding the creditors when the company had been formed. In the following conditions the directors can be held liable for the debts incurred by a company

1.When the directors continue to provide dividends to the shareholders even when the company has become insolvent.

2.The directors has taken the help of fraud to raise funds for paying back the creditors. For instance collecting money for services and goods which cannot be provided or gaining financial help by providing wrong information.

3.Breaching the terms of a personal guarantee

4.Selling the assets of the company at no or less values

5.Taking unreasonable remuneration, creating big loan accounts overdrawn would have to be paid back during insolvency as this is the assent of the company.

What are the advantages of trading as a sole trader?

Some of the advantages of a sole trader are

Easy formation: a sole trading business does not have complex formation formalities as compared to a partnership or a corporation. It can rather be formed very easily and quickly.

Tax Benefits: a separate business tax is not needed to be filed by the owner of a sole trading business. The business figures and information is provided by the traders along with their own tax returns.

Decision making: a sole proprietor has total control over his business unlike in the case of corporations and partnership. He can base the operations of the business on his own decisions rather than any reliance on others.