Revision of Unit 5: Contract law
Problem questions
Here are some problem questions for you to attempt.
Before you proceed you may wish to refer to your textbook, in the
introductory chapter, and read the section on ‘answering problem
questions’.
Commercial law revision questions unit 5: Contract law
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21.
Dave was a bachelor who lived in Sydney. He was a loner and in ill health.
He contacted his sister, Keren, in Oxford, England and asked her to move to
Sydney to help look after him. He promised that if she did, that he’d leave
all his property to her on his death. Keren agreed. She resigned from her job,
sold her house and moved away from her friends. She arrived in Sydney and
began to care for her brother. A few months later they had a falling out.
Dave sold his property and disinherited his sister. His sister sued for breach
of contract. Advise Keren and cite an example of relevant case law.
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22.
John is a pharmacist and the manger of a self-serve chemist supermarket,
which includes certain medicinal drugs being offered. It is illegal to sell
some of these items unless it is under the supervision of a registered
pharmacist. The issue that arose was whether the goods on the shelves with
prices marked on them constitute an offer that the customer accepted when
they took the goods off the shelves. If they were then the contract of sale
was formed at this point and was therefore ‘unsupervised’.
Advise John and cite an example of relevant case law.
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23.
The Curing Cube Company published an advertisement in all the major
newspapers claiming that anyone who used their ‘curing cubes’ would not
develop cancer. If they did the company would pay them $200. As a sign of
good faith, the company lodged $200,000 with their bankers. Caitlin bought,
and used, the curing cubes as directed, and developed cancer. She claimed
$200, but the company refused to pay her. Advise Caitlin and cite an
example of relevant case law.
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24.
An elderly Lebanese couple, with little understanding of English or formal
education, signed a mortgage over their home to Cheatem Bank, as security
for payment of the debts of their son’s business. Their son, Ali, led them to
believe that his company was sound when in fact it was in serious financial
trouble. When Ali’s business went into liquidation, Cheatem Bank tried to
exercise its rights under the mortgage/guarantee. Advise Ali’s parents and
cite an example of relevant case law.
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25.
Brad and Jennifer operate a pizza business. The wood-fired oven has just
blown up and it needs to be replaced. Brad and Jennifer immediately contact
an oven wholesaler, Angie, and tell her that they require a wood-fired oven
installed right away because they need it to make pizzas, their core business.
Angie tells them it will be delivered and installed within 24 hours, by Friday
before a long weekend. Angie then goes to a long lunch with lots of wine
and forgets about Brad and Jennifer’s urgent phone call. When they call
again on Tuesday Angie is very apologetic and sends the oven around to be
installed. Brad and Jen have had to close their business for 4 days and
nights, losing a great deal of money. They want to sue Angie for their loss
of profits. Advise Brad and Jennifer and cite two examples of relevant case
law.
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26.
Gulliver went on an organised bus tour for his annual holidays. The length
of the tour was 23 days. The first 11 days were fantastic and more than
exceeded his expectations. However, on the twelfth day the bus crashed,
trying to avoid a wombat waddling across the highway, injuring Gulliver so
he could not continue his tour on a replacement bus. Gulliver wants to sue
the bus tour company for the full amount of his tour cost. Advise Gulliver
and cite an example of relevant case law.
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27.
Bill is a TAFE student enrolled in an accounting course. His father Ben is
very concerned that Bill is not spending enough time studying. Ben tells Bill
that he will pay him the sum of $2,000.00 if he stays home and studies on
the weekend until the exam. Relying on this money being paid, Bill puts a
deposit on a motor bike. Advise Bill whether he can make Ben pay the
money. Give reasons for your answer and cite an example of a relevant case.
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28.
As Vincent was walking home he saw a painting propped up against a
wheelie bin. He took it home. A few days later there was a news item that a
painting of this description had been stolen from the Gallery of Modern Art.
Furthermore, the Gallery of Modern Art was considering offering a large
reward for its return. The following day Vincent took the painting to the
Gallery. The Director took the painting and authenticated it as the stolen
piece. As for the reward, he said it was not official and he was not going to
pay Vincent anything. Advise the Director of Modern Art Gallery and cite a
relevant case.
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29.
Duncan goes to the pub after work on Friday evening, after a long, liquid
lunch. He drinks alcohol for another couple of hours by which time he is
quite drunk. His workmate, Muhammad, is a Muslim and does not drink
alcohol, but has had orange juice instead, and is quite sober. They have been
talking about Duncan’s new entertainment system that cost him $20,000.00
that unfortunately Duncan is having enormous difficulty setting up.
Muhammad says to Duncan that he’ll buy it for $2,000.00 and Duncan
agrees. Muhammad drives Duncan home in his van and takes the home
entertainment system. The following day Duncan goes to Muhammad’s
place and tries to return the money and recover his entertainment system.
Advise Muhammad and cite a relevant case.
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Feedback for question 21
Wakeling v Ripley (1951) 51 SR (NSW) 183. The presumption that
agreements between family members do not intend to create legal relations
was rebutted. The plaintiff won the case.
Feedback for question 22
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
Ltd (1953) 1 QB 401. The display of goods on shelves, even with prices
marked, was an invitation to treat. The offer took place when the customer
selected the goods from the shelves and took them to the pharmacist at the
cash register. There the pharmacist could accept or reject the offer. If the
pharmacist accepted the money offered by the customer and entered the
price in the cash register, a contract was formed at this point. It was thus a
sale under supervision and not a breach of the Act. So as long as John is
supervising at the check out, he would not be in breach of the law.
Feedback for question 23
Carlill v Carbolic Smoke Ball Co (1893) 1 QB 245. In this case the Carbolic
Smoke Ball Co. argued that their advertisement was nothing more than an
advertising ‘puff’ and they did not intend to create a legal relationship with
people who bought and used their product. However, the Court rejected this
argument. The money deposited at the bank was clear evidence that there
was an intention to pay anyone who performed the conditions of the offer
and who claimed the money. Had this money not been deposited, it would
have been more difficult to prove that that the company was not using an
obvious exaggeration. It looks like Curing Cubes Company will have to pay
up.
Feedback for question 24
Commercial Bank of Australia v Amadio (1983) 151 CLR 447. This is a
case of unconscionable conduct in that the bank had taken unfair advantage
of its superior bargaining position for its own commercial gain. The bank
knew about the financial state of the son’s business whereas his parents did
not. Furthermore, the bank did not explain what the parents were entering
into and they did not get any independent legal advice. The court held that
the conduct of the bank was unconscionable; it was unfair and unjust. The
parents were at a special disadvantage which substantially affected their
ability to protect themselves. The bank must have known, or should have
known, of the parent’s disability, and the actions of the bank were
unconscionable. In such circumstances, the court held that the contract was
voidable at the option of the plaintiffs.
Feedback for question 25
In Hadley v Baxendale (1854) 156 ER 145 the court decided that the carrier
was not liable for the loss of profits caused by the delay because the loss did
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not flow directly from the breach of contract. It was too remote to have been
foreseeable by a reasonable person. However, if the carrier had been made
aware at the outset of entering into the contract that a delay could result in
the mill having to close down, then the carrier could have been liable for the
loss of profits.
In Victoria Laundry Ltd v Newman Industries Ltd (1949) 2 KB 528 the
supplier knew the plaintiff required a boiler urgently for their business to
allow them to take advantage of favourable trading conditions and to
undertake expansion of their business. The court found that the laundry
profits were recoverable since the defendants must have contemplated that
there would be a loss if there was a delay. However, the defendants did not
know that the plaintiffs had negotiated a lucrative government dyeing
contract. The court found that the loss on these dyeing contracts was not
recoverable because the defendants were not in a position to know of the
highly valuable nature of such government contracts. Therefore, to sue
successfully it is essential that Brad and Jennifer had made it clear that they
could not operate their business without the wood-fired oven.
Feedback for question 26
In Baltic Shipping Co v Dillon (1993) 79 ALJR 228 Dillon was a passenger
on a ship that sank eight days into the cruise. She was injured and sued
Baltic Shipping for recovery of the fare and disappointment and distress at
the loss of entertainment. The court decided that Dillon should get some, but
not full, compensation, because she had enjoyed eight days of the holiday.
The ‘some’ compensation was based on the fact that there had been a breach
of an express or implied term, namely, the enjoyment that can typically
derived from a holiday.
Feedback for question 27
Balfour v Balfour (1919) [1910] 2 KB 571and Wakeling v Ripley (1951) 51
SR (NSW) 183 deal with the intention to create legal relations. Domestic
and family agreements are presumed not to be agreements intended to have
legal consequences. However, this presumption is rebuttable, especially
where Bill would suffer a significant loss. So it depends if Bill can show
that this is the case as in Wakeling v Ripley. If not, then Balfour v Balfour
would be applied.
Feedback for question 28
The Director could claim R v Clarke (1927) 40 CLR 227 and refuse to pay.
This scenario deals with the element of agreement. One of the requirements
of acceptance is that the offeree must respond to and rely on the offer. An
acceptance is probably not valid if the offeree did not respond to a specific
offer on which Vincent reasonably relied. Indeed, the offer had not yet been
made since the Art Gallery was “considering offering a large reward”.
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Commercial law revision questions unit 5: Contract law
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Feedback for question 29
An essential element of the contract is missing as Duncan was drunk and
therefore this goes to capacity to contract. Duncan could rescind the contract
if he can show that he was so affected by alcohol that he was incapable of
making a proper judgement about entering into the contract and that
Muhammad knew this, or should have realised this impaired capacity. The
contract would then be voidable and Muhammad may have to return the
entertainment system and Duncan will have to return the $2,000.00 to
Muhammad. A relevant case is O’Connor v Hart [1985] 1 NZLR 159.
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