Laws 1204
Contracts
Semester 2 – 2000
Mark: 93
How to Use this Script: These Sample Exam Answers are based on problems done in the past two years.
Since these answers were written the law has changed and the subject may have changed. Additionally, the
student may have made some mistakes in their answer, despite their good mark. Therefore DO NOT use
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summary. If you do so YOUR MARK WILL PROBABLY END UP BEING WORSE! The LSS is
providing this script to give you an idea as to the depth of analysis required in exams and examples of
possible structures and hence to provide direction for your own learning. Please do not use them for any
other purposes - otherwise you are putting your academic future at risk.
Part A
Hermoine wishes to prove that her termination of the catering contract with Quidditch was lawful. If
she proves this successfully she will not be liable for the damages Quidditch is asking for.
Alternatively if it is found her termination was unjustified she wishes to know what damages she is
liable for.
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In order to lawfully terminate the contract, Hermoine must prove that Quidditch was seriously in
breach.
The possible complaints Hermoine has are:
- the lack of vegetarian meals
- the fact the food wasn’t fresh and hot
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- the breach of the time clause by Quidditch
- the fact the food tastes appalling.
Vegetarian Meals + Fresh + Hot
The comments about the meals being “fresh and hot” and that Quidditch could guarantee at least three
different meals every evening including one vegetarian: were made in the course of pre-contractual
negotiations. Hermoine needs to prove these were a part of the contract. The law relating to this
states:
- A pre-contractual statement may be a promise or representation. To determine if something is a
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promise the following factors may be considered:
- the time when the statement was made
- whether it was in writing
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- the relative knowledge of the parties.
(Couchman v Hill, Oscar Chess v Williams, Ellul and Ellul v Oakes)
In this situation, Quidditch made the comment to Hermione immediately before the contract was
entered into, he was also in a position of grater knowledge. Though it wasn’t in writing thus was
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accepted in Couchman v Hill to not always be necessary. Therefore it appears the two comments
made by Quidditch were promises.
The problem, is however that when a contract is in writing the parol(?) evidence rule comes into play.
Though this rule operates only when the contract is all in writing. (State Rail Authority v Heath). It
can be integrated into the contract (Johnson & Matthey v Rochester). This rule excludes any precontractual statements, promises etc that don’t appear in the written contract. Cl 9 of this agreement
has integrated the past evidence rule so neither of the promises made can be incorporated into the
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contract.
It is possible however, to have a pre-contractual promise considered to be a separate unilateral contract.
This is called a collateral contract. To satisfy the conditions of this the promise must be
- the kind you wouldn’t expect in the contract (Shepperd v Ryde)
- and it cannot contradict the main contract (Hoyts v Spencer)
In this case it would appear that Hermione has signed a fairly standard sales contract. You would not
expect details about the type and temperature of the food in this. There is no contradiction between
these statements and the contract. Therefore the type and temperature of the food may be considered as
separate collateral contracts.
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There is a requirement that a contract must be certain. A therm that has several meanings or no
meaning at all is deemed uncertain if it is not possible to sever this term from the contract the contract
will become void. (Whitlock v Brew). The description of the food as being fresh and hot could have
several meanings. It could include any range of temperature and any definition of fresh ingredients.
As this is the only term of the collateral contract it must void
- Hermoine is left only with the collateral contract for the vegetarian meals. This collateral
contract can be terminated for a “breach that goes to the root of the contract” (Hong Kong Fir
Shipping) not providing at lease one vegetarian dish per day is certainly be the root of this
collateral contract. Therefore Hermione can terminate it and seek damages for the lack of
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vegetarian food. However unfortunately for her this does not affect the main contract.
Hermoine may alternatively argue that in promising to provide her with vegetarian food, she was
mislead as to Quidditch’s future conduct. This comes under SSIAA of the trade practices Act. It will
be up to Quidditch to prove that when he made the statement he did intend to keep it at the time. (see
Futuretronics v Gadzhis) Though this is a heavy onus Quidditch may be able to dispel it by arguing he
did intend it but then suffered kitchen troubles due to the temporary problems of the 4 th week. (What is
necessary for misleading and deceptive conduct will be discussed in Part B). If Quidditch doesn’t
dispel this onus Hermoine will be entitled to s. 87 of the TPA remedies which incl. the contract being
terminated, damages etc.
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It also possible to argue that there was a common law misrepresentation as to the state of one’s mind.
(Eddington v Fitzmaurice). However as the only remedy awarded under this generally is recision it
does not help Hermione. It is impossible to hand back eaten food.
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Therefore it is most likely that the guarantee of a vegetarian meal will be treated as a collateral contract
which will entitle Hermione to damages but not to terminate the main contract.
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The time clause
The general law relating to the termination of a contract is whether a condition (a serious term) or a
warranty (a non-serious term) has been breached. If a condition has been termination is justified. If it
is difficult to assess if something is a term or condition you must consider if the breach got to the root
of the contract or “deprived the other party of substantially the whole benefit of the contract.” A
special method of determining if a breach of a time clause is a serious breach if the phrase “time is of
the essence is used” a breach of a time clause will always be considered as serious. There is some
authority that in mercantile contracts time will always be of the essence (Bunge Corp v Tradax) but this
isn’t always followed.
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In this situation “time is of the essence” hasn’t been used. However, the word SHARP following the 6
pm has been capitalised. Hermione could try and argue that the emphasis on this word was to indicate
time is of the essence but this would be difficult to do without using the actual phrase. A further
indication that breach of a time clause will not be considered a serious breach is the fact that Hermione
has been late in paying for her meals every week despite the stipulation that they be paid IN 
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ADVANCE.
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In such circumstances one 1.5 hr breach could not be considered a breach that goes to the root of the
contract.
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The food tastes appalling
Under common law Hermione has no grounds for this complaint. There was no term in the contract
relating to the taste or customer satisfaction required for the food. However there are terms implied in
certain contracts by statute, eg. The Trade Practices Act specifies that goods must be fit for their
purpose and must be of merchantable quality. Food would not generally be considered a good but if
Hermione could find another statute specifying the quality of food and demonstrate that the food
supplied was in breach of that she may recover damages. If deemed to be serious enough it may also
allow her to terminate the contract.
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A series of small breaches
If there has been no one breach going to the root of a contract but a series of small breaches this may
justify termination. Maple Flock v Universal Furniture. In Hermione’s case she may argue the food
quality and breach of the time clause if implied add up to a serious breach therefore justifying
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termination.
Anticipatory Breach
It is also possible to terminate a contract if it becomes clear the other party would not be able to fulfil
their contractual obligation. This decision must be on the facts as they reasonably appear at the time.
(Universal Cargo Carriers v Citat) If Hermione had reason to believe that Quidditch would be late
from then on with the delivery an anticipatory breach termination may have been justified. But in my
opinion the facts do not support this.
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Conclusion
Hermoine was not justified in terminating the contract. Though she may seek damages for the breach
of the collateral contract about the vegetarian meals none of the other breaches justified termination
unless a statute supports the food quality argument. She will be liable in damages to Quidditch.
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Damages
Quidditch intends to sue Hermione for a loss of profits and loss of a chance at winning the Australian
Catering Competition.
If one party unlawfully terminates a contract the other party can be awarded damages for their
repudiators conduct.
To satisfy this Quidditch must demonstrate that Hermione’s breach caused the loss (Alexander v
Cambridge and Credit Corp).
That Hermoine could reasonably have contemplated the loss as a serious possibility at the time she
entered the contract (Victoria Laundry). That Quidditch had done all they could to mitigate their loss.
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If terms of the lost profit it was clearly caused by Hermione’s unlawful termination. It should also
have been contemplated by her.
However, it does not appear Quidditch has done anything to mitigate the loss. He is therefore obligated
to find another buyer and Hermione will be liable for the difference between his first profit and the
profit from the new buyer.

With the loss of the chance at the prize. More facts are needed to show that her breach was the cause
of Quidditch being dropped. Further it must be shown Hermione contemplated this when she entered
the contract or Quidditch specifically warned her of it (Victoria Laundry). If this is satisfied Pauline
will be liable.
However the court will also take into account the perceived(?) chance of Hermione lawfully
terminating the contract before the prize was awarded (Commonwealth v Ammann Aviation). The
damages will only be reduced by this amount if it is beyond the balance of probabilities (at least on
current authority)*(There was some support for the damages being reduced by  of chance of
termination by HCA minority.) The damages may also be reduced by the chance Quidditch had of
winning. (The beauty contest case).
Part B
Hermione wants to either get out of the loan or be awarded damages for her loss from entering in to it.
Ron wants to be relieved of his obligation under the guarantee. Ron will only be liable for the loan if
Hermoine is.

The main issue in this case is whether the Bank’s statement that the interest rate “is better than any
others on offer in Aust” amounts to misleading or deceptive conduct under s. 32 of the Trade Practices
Act.
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This requires a corporation in trade or commerce shall not engage in misleading or
deceptive conduct.
A corporation in trade or commerce
Here clearly Malfoy was representing a corporation (bank) and was engaged in trade or commerce (a
loan sale).
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Misleading or Deceptive conduct
The standard is the ordinary person who may be a bit naïve but not unusually stupid. (Annaud v
Thompson) The person receiving the information is not obliged to check it (Redgrave v Herd as
applied to the TPA).
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In this situation Hermione is a businesswoman and does not appear to be unusually stupid. The fact
she didn’t check the opposition will not affect her action.
It was found in Henjo that contributory fault is not relevant so even if she was a fault in not
checking it does not matter.
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Damages
Are calculated as according to s. 82 of the TPA these are (?) style damages. Hermione will be required
to prove that she could have got another contract with the same benefits as she thought she was getting
without extra expense (Gates v City Mutual, Marks v GIO) It would appear that Pauline could actually
have got a 6 loan with another institution. This would mean that the bank is liable for the difference
between the 8 she was paying and the 6 she could have got.
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She could also attempt to argue common law misrepresentation as a statement of opinion by someone
with sneak (?) knowledge is taken to supported by fact (Smith v Land & House) but as the
only remedy is rescission taking the s. 52 claim is the most desirable course.
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Ron
If for some reason Hermione’s claim was to fail, Ron has other protection to avoid his guarantee.
The court will protect guarantees made by a wife if
(1) the wife didn’t understand the nature and purpose of the transaction
(2) it was voluntary and she didn’t get any personal gain
(3) she could trust her husband in business matters and he didn’t explain.
(4) The bank (etc) didn’t explain the guarantee (Garcia v NAB)
At this stage this has only applied to wives but the court may be willing to extend it to a husband.
It is quite clear that Ron didn’t understand the guarantee he thought it was just business paperwork.
He gained no personal benefit (as benefit to a spouse isn’t considered sufficient).
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The only problem with Ron’s claim is that if it is unclear whether he put all his trust in Hermoine for
business matters. He wasn’t involved in the hostel business and Hermoine claims he trusts her in
business matters, but he runs a spiritual retreat in Sydney. Ron would be required to dearly prove that
he puts all his trust in business matters in his wife in the authority the wife was a doctor. So Ron may
be able to demonstrate he didn’t have the specific business knowledge. Hermione certainly didn’t
explain just telling Ron to come to the bank.
It would appear the bank also did not explain and it is unlikely the court will accept Ron’s answer of
“Yeah, sure” as adequately discharging the requirements of the bank to explain.
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Even though Ron signed the document, this protection allows the guarantor to be excused from the
normal requirements that binds you to what you have signed.
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Therefore as long as the court is willing to extend this to husbands, Ron should be
relieved of his obligation under the guarantee.
In the case the court doesn’t accept, Ron may be able to argue for unconscionable bargaining on the
part of the bank.
Ron would have to prove that his was in a special position of disability, that this was evident to the
bank and this made a unconscionable to accept his agreement and the transaction (Commonwealth
Bank v Amadio). One special disability is (?) or there is also infirmity of mind (Blomley v Ryan).
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Depending on how deep in meditation Ron was in and whether that continued at the
bank. If his state was evident tot he bank it would have been unconscionable to take his agreement.
This would depend on deep meditation being analogous to drunkenness or mental infirmity. However,
as Ron actually made it to the bank ones argument is fairly weak.
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