Chapter 2

Think about your country for a moment. Do you think PNG is a highly regulated country? Look at the type of regulatory framework currently in place.

This is really an opinion question asking you ‘What do you think?’ Is PNG a highly regulated country, can you explain why.

Common law ceases to be common law when it becomes codified. What does this mean?

Begin by explaining what common law and statute law are, and then what codified means.

Parliament and the courts are independent of each other. Common law is law that is derived from judicial decisions of the courts by judges using precedents and statutes.

Parliament can create and change the law by way of statutes and statutory regulations. Parliament can override or codify the common law, which means collecting and arranging judicial decisions and pre-existing legislation according to topic matter into codified or statutory form. In law, the effect of codification is to replace existing common law rules, not creating new laws.

Common law can exist without equity, but equity cannot exist without common law. Can you explain why?

In this question begin by explaining what common law and equity are. Then explain whether equity can exist with/without Common law.

 Common law is the law developed from custom and out of the decisions (case law or precedent) of judges in the ‘superior’ courts. In PNG, this would be the National and Superior Courts.

Equity is a system of law in its own right. It accepts common law principles and rights but it overrides them where it would be unjust or unconscionable to rely on the common law.

What is the main remedy in a common law action?

Damages.

In the event of a conflict between statute law and common law which takes precedence and why?

Statute law takes precedence over common law. Common law has its source in the decisions of judges who are independent of Parliament and the people. The common law will only be maintained to the point where it conflicts with a statute.

Statute law is law made by Parliament in the form of Acts and regulations.  Unlike the judiciary, Parliament is made up of politicians who are people elected by, and answerable to, the people who elect them through the electoral process. If people don’t like the laws that the politicians make, they can vote them out at election time. There is an element of accountability, as far as politicians are concerned, which is absent in the case of judges.

What is Organic Law and why is it important in the PNG?

Explain what ‘Organic Law’ is first and then explain why it is important.

 Organic law is a set of foundational laws or regulations that have the status of constitutional laws and along with the Constitution are the supreme law-making law of PNG. subject to section 10 of the Constitution (construction of written laws), all acts, whether legislative, executive or judicial, that are inconsistent with these documents are, to the extent of the inconsistency, invalid and ineffective.

Organic Laws are defined in s. 12 of the PNG Constitution as laws made by Parliament that are:

‘(a) for or in the respect of a matter provision for which by way of an Organic Law is authorized by this Constitution; and

(b) not inconsistent with this Constitution; and

(c) expressed to be an Organic Law’.

The Constitution and the Organic Law together regulate the legislative powers of the national, provincial and local-level governments with each level having its own distinct law-making powers. The law-making powers of the National Parliament law-making powers are covered in s. 41 of the Organic Law, the provincial legislatures are outlined in s. 42, and local government powers can be found in s. 44.

What is customary law and why is it important in PNG?

First, explain what customary law is and then explain its importance.

Custom or customary law is the rules and practices that govern the native people in society in their way of life and their rules and responsibilities that they must abide by in their society. Schedule 1.2 of the PNG Constitution, s 1 of the Interpretation Act 1975, and s. 1 of the Underlying Act 2000 all use the same definition of custom as “the usages of indigenous inhabitants of the country existing in relation to the matter in question at the time when and the place in relation to which the matter arises, regardless of whether or not the custom or usage has existed from time immemorial”.

The Constitution and the Underlying Act 2000 both provide that in the absence of written law, the courts must develop the underlying law, drawing first on customary laws and usages, and only then on common law and equity. The reason lies in the very diverse society that exists in PNG with over 1,000 customs found in different areas, each with its own customary laws that guided them in their way of life.   Schedule 2 of the Constitution gives formal recognition to the importance of the role custom play in PNG society in the development of an underlying law, particularly in areas of Family Law and property.

What does the phrase ‘Ignorance of the law is no excuse’ mean to you?

Just note that this question is asking you for your opinion. So there is no set answer. So begin by explaining what you think the expression ‘ignorance of the law is no excuse’ means and then go on and explain what it means to you.

Is it reasonable to expect that everyone knows the law? Do you? How do you overcome this problem?

Really, another opinion question, so no right or wrong answer. Do you think it is reasonable to expect everyone to know ‘the law’? Remember the question is asking you how much law you do know. Then comment on whether the problem can be overcome, for example, by education, or by the government carefully explaining what the purpose of an Act is. Will that solve the problem? What do you think? 

Explain why an understanding of different legal systems around the world might be useful for you in business.

Again, a question asking for your opinion if you are in an import/export business. What do you think are the benefits of having an understanding of other legal systems is?

 Understanding other legal systems you might be considering doing business with can help you avoid liability and at minimise, risk.  It is very important to understand the environment in which you are planning to do business because minimizing liability exposure and avoiding legal disputes must be a primary concern for those in business.

Legal systems vary widely around the world in their aims and the way they resolve disputes. For a business to succeed, it is important to understand how other legal systems law apply the law, how each country’s legal system presents its own unique set of rules, and how the political systems of each country work, as they make the law.

Why do you think it important to know what the term ‘person’ means in law?

Begin by explaining what the term ‘person’ means and from that you should be able to go on and explain its importance in law

‘Person’in law means any human being but also includes any entities or legal persons that are created by statute that are capable of suing or being sued such as companies, partnerships, trusts, and even government agencies, and who have certain rights and responsibilities under the law. They have the ability to enter into contracts, own property, sue and be sued, and can be held accountable for their actions.

Why is it important to understand the difference between international and domestic law in business?

Begin by explaining what the terms ‘international business law’ and ‘domestic law’ mean and then explain why it is important to understand the difference.

International business law governs business between countries on a global scale and as no two states have identical legal systems, it is important to understand what the legal differences are between jurisdictions. Depending on what the business intends to do, for example, to enter into a trade agreement to import and/or export goods or service, or to set up a business in another country, businesses must understand and comply with the various legal systems to ensure not only trade laws and regulations compliance, conventions, and treaties, but also domestic legislation and commercial customs which together govern international business transactions.

Domestic business law refers to the legal framework established within a country and how it regulates how business is to be conducted within a country. It regulates the behaviour of individuals, organisations, and governments within its borders and is primarily concerned with maintaining order, protecting individual rights, and resolving disputes within the country.

Together, and understanding of, and compliance, with international business law and domestic business law helps businesses minimise exposure to legal exposure in the form of litigation, and avoid trade disputes.

Why do you think an understanding of the main principles underlying each source of law is important when trying to understand how the law and business interact?

Note that the question is asking what your opinion is as to why an understanding of the main principles underlying each source of law in PNG is important. So begin with what you think are the main sources of law and then how it helps you understand how law and business interact.

An understanding of the main principles underlying each source of law provides a framework for understanding how and why each source of law has evolved, ensuring consistency and predictability in legal outcomes and shaping the way business is conducted. For business, an understanding as to the how and why of each source of law helps businesses comply with applicable laws and regulations, as well as providing guidance on risk management issues.

What reasons can be put forward to explain why the PNG National Constitution has undergone change at least 43 times since its inception in 1975?

This is a Discussion Question with no set answer. It is seeking your opinion. Why do you think there have been 43 amendments?

Why do you think the PNG Constitution has changed at least 43 times since it was formally adopted in September 1975, the last time in 2016? Is it a ‘living’ document that is still evolving as PNG is evolving? Look at the Constitution (http://www.paclii.org/pg/legis/consol_act/cotisopng534/). In 1975 was PNG ready for self-government and political independence from Australia? Did the highland tribes need more time to grasp the idea of nationhood. But has that changed?

What do you think is the purpose of having a Constitution? Do we even need one?

Another opinion question. Think about why you have a Constitution and then think about whether it is really necessary.

 PNG’s Constitution is what is called a codified constitution because it is incorporated into a written document, and its purpose has historically been to limit the power of government.  It is simply a set of rules that set out how power is distributed between the Executive, Parliament and the judiciary. These rules structure the government of a state. Without such a set of rules, the state could not function and anarchy would reign. Without a constitution the power of government is unlimited. It can be argued that what a constitution produces is order but does it? Look at the PNG Constitution and see what it covers.

Is the Constitution too complicated and should it be simplified? Explain why?

Yet another opinion question and with no ‘right’ or ‘wrong’ answer. What do you think? The PNG Constitution certainly covers a lot of topics.

This is a Discussion Question with no set answer. Why do you think the PNG Constitution has changed at least 43 times since it was formally adopted in September 1975, the last time in 2016? Is it a ‘living’ document that is still evolving as PNG is evolving? Look at the Constitution (http://www.paclii.org/pg/legis/consol_act/cotisopng534/). In 1975 was PNG ready for self-government and political independence from Australia because its people, especially in the highlands, needed time to grasp the idea of nationhood. But has that changed?

If you had the power, what would you change in the Constitution? Explain why?

An opinion question and there is no ‘right’ or ‘wrong’ answer. The question is asking you what YOUR opinion is on the Constitution. Is it too broad, too narrow, does it adequately deal with the problems PNG currently have.

Chapter 3

If you are injured because of the actions of another person, would your preference be to take action against the person who injured you in tort law or criminal law? Explain why.

Begin by explaining what each action involves, that is, tort law and criminal law, and that will answer the question. Remember that tort law is about a civil action and criminal law is about punishing the wrongdoer.

Both tort law and criminal law seek to impose duties on people, but they do it in different ways and with different outcomes. Tort law is private in nature in the sense it is brought by you as you are the person who has suffered some form of loss or damage and you are now seeking compensation, usually in the form of monetary compensation (or damages) from the person who caused that loss or damage.

Criminal law, on the other hand, is principally public in nature, as breaches are enforced and ‘prosecuted’ by the state, and the outcome for the wrongdoer is punishment, generally imprisonment and/or a fine.

I would assume that normally you would want compensation and so bring a tort action such as trespass to the person – assault and battery.

Problem answer

A problem question and note carefully what you are being asked to do. Note that the question is asking you who owes a duty of care when there is an activity involving a recreational activity– the resort? The lifeguards? No-one? Begin by explaining that this is a possible negligence action and that to succeed you need to establish duty, breach and damage.  At this point, the case is really about the question of who owes a duty of care, so explain what a duty of care means and apply the facts. The facts raise a couple of other issues that are dealt with later – the vicarious liability of the resort and their defence of contributory negligence.

Negligence is omitting to do something that a reasonable person would do, or doing something that a prudent and reasonable person would not do, to prevent harm. It is the failure to exercise reasonable care and skill that results in unreasonable risk of foreseeable injury.

In a negligence action you, as the plaintiff, have the onus of proof to establish 3 elements – duty of care, breach of that duty and causation (damage caused by the defendant). If any of those elements cannot established in your favour, no action. So begin with the duty question.

In this case, as the plaintiff, you must first establish that the defendant owes you a duty of care (here the focus is on the foreseeability of causing harm to you as the plaintiff.) This is essentially a question of law that the judge decides based on common law principles. To establish a ‘duty of care’, you as the plaintiff, must show that the kind of harm you suffered was reasonably foreseeable and was a result of the act/s or omission/s of the defendant. One way you can do this is by showing that you were one of the class of people who would foreseeably be at risk of injury if the defendant failed to take reasonable care. Duty will only be imposed when it is reasonable in all the circumstances to do so.

From the facts we are told that the lifeguards on duty could see the sandbars and should have been aware that diving into the water without checking its depth was dangerous. The lifeguards sole purpose was to ensure the safety of swimmers and they owed them a duty of care to ensure that the flags were properly place so as not to endanger their safety. They failed to do this and so have satisfied the first element for a negligence action. You would argue that this type of accident can be said to be well established because the facts fall into a well-recognised duty category involving dangerous beach conditions.

Who would you sue? From the facts were are told that the resort employed the lifeguards. That makes the lifeguards employees of the resort and at the time of the accident we are told they were on duty. Now, who do you sue? It is highly unlikely the lifeguards would have nay money to pay the amount of damages you would be seeking, so don’t bother. However, as the lifeguards were on duty at the time of the accident, it would be possible to sue the resort under a principle called vicarious liability. That is where an employer can be held liable for the actions of their employees.  More on this later in the chapter.

The resort will argue that they have a defence called contributory negligence. This is a defence where they will argue that a beachgoer would understand that diving into the water first without checking it was safe was negligent, that is, that a reasonable person would check the water depth before diving. You would argue that the purpose of the flags put into the sand by the lifesavers indicated to all swimmers that it was safe to do so.

What does the term ‘reasonable person’ mean to you?

Begin by defining what is a ‘reasonable person’ and then explain what the term means to you.

A reasonable person is a hypothetical person created by the courts who is of normal intelligence, credited with such perception of the surrounding circumstances and such knowledge of other pertinent matters as an average person would possess.

What factors does a court take into account when judging the standard of care under common law?

Begin by explaining what the term ‘standard of care’ means and then explain the factors that a court takes into account when judging the standard of care.

The standard of care is the level (standard) that the defendant’s conduct is measured against objectively. It is a question of law, not fact. The question to consider is: What would the reasonable person have done if they had been in the defendant’s position?  

It will vary from situation to situation, and is flexible depending on the circumstances of the case—for example, is it an emergency?—as well as the personal characteristics of the defendant, including age (young children are not expected to exercise the same degree of care as adults), fitness, health, disability, skill, and knowledge. In the case of children, the reasonable person test gives way to a different standard, that is, the standard of a child of similar age and experience.

Do you think children should be treated differently to adults?

A personal opinion question. What do you think? Should children be treated differently to adults?

In the case of children, you need to understand that they are less capable than adults in taking care of themselves. So the reasonable person test gives way a different standard, that is, the standard of a child of similar age and experience.

If you are placed in a position of responsibility for children, directly or indirectly, you must make the children’s safety your foremost concern. This carries a more onerous duty of care because children don’t perceive danger or risk in the same way you do as an adult. There is a duty of care placed on you but your obligation is to exercise reasonable care, not a duty to prevent conduct that could be potentially harmful.

Problem answer

Another problem question and while it is a negligence question, this time you are looking at the question of causation, so begin by explaining what causation is and then look at the facts again and consider whether the driver should still have to bear the consequences for your injury.

Remember that in a negligence action you, as the plaintiff, have to establish three elements – duty, breach and damage. Drivers of vehicles owe a duty of care to their passengers and other road users to exercise care at all times whilst driving. So the first step is satisfied. There has been an accident and so the driver has breached their duty of care. But is the driver responsible for heroin addiction?

The answer to the third question, that of causation, is that on the balance of probabilities the answer is probably no. Causation is determined subjectively—that is, what the injured person would have done, in the light of all relevant circumstances—as distinct from the objective test of the conduct of a reasonable person. In this case, an intervening events involving the actions of a third party giving you heroin to ease the pain, responsibility for the harm, that is, the heroin addiction, should not be imposed on the driver.

Can you explain the purpose of causation in relation to the liability of a defendant.

The question is only asking you to explain the purpose of causation, so define it.

Without causation, a defendant cannot be held financially liable for damages. The plaintiff not only has to prove that the defendant owed them a duty of care and they breached that duty, but also that the breach of duty caused the damage that led to the injury.

Having established duty, breach and damage, do you think the defendant should be liable for all the damage have suffered?

An opinion question, so not necessarily a right or wrong answer. Explain the purpose of causation and then whether you think it is fair or unfair that a defendant has to pay the plaintiff’s claim for the occurrence of a physical injury which the plaintiff was prepared to accept?

It only seems fair that a defendant should only be liable for the damage that was foreseeable and which was attributable to that which made their act wrongful. Why should a plaintiff be compensated for the occurrence of a physical injury when he was prepared to accept the risk?

Problem answer

This is a vicarious liability question. Begin by explaining why you probably would not sue the barmaid and why you would look to trying to sue the employer on the basis of vicarious liability. So explain what vicarious liability is, what has to be proved (the elements) and whether you think you could win.

The barmaid is unlikely to have any money to pay for damages and legal costs, so vicarious liability seems to be the only choice. This is where an employer can be held vicariously liable for the acts or omissions of their employees who cause injury to a third party. The barmaid was working at the time and that involved serving drinks to customers, so her actions in serving the customer were in the course of her employment. However, by her actions then of throwing the beer over you and followed by the glass were not what a reasonable person would do. Vicarious liability is a sub-set of negligence and having established that she was acting the course of her employment, discuss the four elements of negligence – duty of care (of a barmaid), breach of duty (when barmaid throws contents of glass and then the glass in your face), damage to your face (‘but for test’ and factual causation), and damages (or compensation). Do the employer or the barmaid as the defendant, have a defence such a contributory negligence?

Problem answer

Another problem question. Note from the facts where the injury to the mother occurred and how it occurred. It was on a property she was at where there was a garage sale (not a commercial market) and there was an uneven surface on the drive, a typical of houses in the area,. And she was distracted by the goods on display. This is a question then about the responsibility of the owner of the house as the occupier.

In this case the Wrongs (Miscellaneous Provisions) Act 1975, Part XII s 52 have replaced the common law relating to the liability of occupiers for damages that are suffered on premises.  An occupier under the Wrongs (Miscellaneous Provisions) Act 1975 owes the same duty as they would have in common law, that is, to exercise a duty of care to all visitors that are reasonable as in all the circumstances, so that it will be reasonably safe in coming on to the premises to view the goods on sale.

In this case, would a reasonable person in your position as the occupier have seen that there was a real risk to the mother as an uneven surface was atypical for that area? What would a reasonable person have done in response to the risk? Was the risk obvious? Should the mother have been more careful as she would have been aware of the risk? Put up a sign maybe? Remember, what you are looking at is what is reasonable in the circumstances.

If this was a commercial market, then there would be a much higher duty of care. Can you see why?

Problem answer

Another problem question where you need to read the facts carefully. It concerns the liability of a manufacturer of defective goods, so that should tell you this is about product liability and negligence.  So explain what product liability is and what needs to be established to win the case. (It could also involve the Goods Act and fitness for purpose and merchantable quality but that is week 6)

Manufacturers owe a duty to the consumer to take reasonable care when:

• a product is sold, that it reaches you as ultimate consumer in the form in which it left the manufacturer; and
• there is no reasonable possibility of intermediate examination by you; and
• it is reasonably foreseeable that, in the absence of reasonable care by the manufacturer, you will be injured.

If a product is negligently manufactured, assuming it is locally manufactured, that company or business is responsible for how the product is made. As the case of Donoghue v Stevenson illustrates, the manufacturer owes a duty of care to the consumer to take reasonable care as absence of reasonable care in the manufacture of the product can result in injury to you as the consumer, and liability common law for the manufacturer in negligence.

Problem answer

The last problem question in this chapter. Here the facts tell you that there has been an escape of water that has flooded the neighbour’s mine caused by the negligence of some independent contractors who were constructing a reservoir on the defendant’s property. The defendant knew nothing about the old mine shafts. Should a person be held strictly liable? So begin with an explanation of strict liability and then outline the elements that need to be satisfied and apply to the facts.

From the facts it would seem that the only cause of action available to you is strict liability, or the rule in Rylands v Fletcher. In such a case the defendant is responsible for damages that result from their act, whether they were negligent or not. It is a cause of action that can arise if an occupier of land (the defendant) accumulates or brings on to their land something which could be ‘dangerous’ if it escapes in the course of some ‘non-natural’ use of their land to a place outside their occupation or control. They must keep it in at their peril, and if they don’t, they are strictly liable for all the damage which is deemed to be reasonably foreseeable.

To have a cause of action in strict liability, you must be able to establish that:

• that the defendant brought something onto their land (a reservoir to store water);
• that what the defendant made a ‘non-natural use’ of the land (the defendant was having a reservoir built to store water which is not a natural use of the land);
• that what the defendant brought onto the land was likely to do mischief if it escaped (where the water escaped on to your land, that is, you mine); and
• that there was an escape from the defendant’s land over which the defendant had control or occupation to a place over which he had no control or occupation on to your land which caused damage of a reasonably foreseeable kind.

Chapter 4

What elements are necessary for the creation of a valid simple contract?

Agreement (consisting of offer & acceptance) plus Intention to Create Legal Relations plus Consideration = Contract

Explain the difference between a formal and a simple contract.

Just note that the difference between this question and the one above is that this question asks you to ‘Explain’ and so you are going to have to write a more detailed answer. The first question is asking you to list the elements, nothing more.

Essentially, the difference between a formal and simple contract is consideration. A formal contract is signed, sealed and delivered, and derives its validity from its form alone (it does not need consideration). A simple contract requires the presence of all six elements (including consideration) and compliance with any statutory requirements (form), and may be oral, written, or partly oral and partly written.

Explain what sort of problems may arise in contract law for users of e-commerce? Discuss.

Begin with an explanation of what you think an e-commerce is. Then you can go on and list what you see are problems using e-commerce.

E-commerce, or electronic commerce, is about the buying and selling of goods and services, and the transmission of money and data, over the internet.

While there are a number of advantages of e-commerce, we are being asked to consider what are the disadvantages. While you may think of more, here are some:

• Online identity identification – is the visitor to a site who signs up, a legitimate customer?
• Limited face-to-face interaction – customers can’t try before they buy and this can lead to buying indecisions and refunds.
• Product return and refund
• Technical challenges – this can include technical glitches such as software failure, website crashes.
• Data security concerns – cybersecurity attacks and spam are the biggest e-commerce challenge. E-commerce websites often store customers’ card information to allow faster purchases in the future, so if a site is hacked, the hackers can acquire personnel information on you. Customer data is compromised, and the web sites of affected businesses lose sales from a damaged reputation.

Explain whether an unaddressed proposal in an electronic communication to create a contract is an invitation to make an offer or is it an offer that others can accept?

Note that the question says ‘Discuss’. Explain what invitation to treat is.

The Electronic Transaction Act 2018 applies to any kind of data message and electronic document in the context of commercial and non-commercial activities. Section 19(2) of the Electronic Transaction Act 2018 provides that where the proposal is not addressed to one or more specific parties, but is generally accessible to parties online, it is to be treated as an invitation to treat, that is, a party who receives an invitation to treat can make an offer to enter into an agreement which anyone who receives it can do.  They are not binding.

Problem answers

A problem question. Just note what you are being asked to do, that is, comment on whether there is a contract based on an exchange of texts.

The exchange of texts is sufficient to constitute a note or memorandum to allow the court to draw the conclusion that the documents are connected and intended to create a contract as long as they contain the names of the parties, the subject matter and terms of the agreement.

Chapter 5

What problems, if any, can you see for consumers with the use of standard form contracts?

Begin by explaining what a standard form contract is and then look at potential problems with the use of standard form contracts. Remember that if you sign or initial the contract, you are going to be bound by the fine print, whether you have read it or not.

Standard form contracts are a commonly used and cost-effective option when conducting business, as they avoid the transaction costs associated with negotiated contracts. They are pre-prepared contracts where most of the terms are standard terms and conditions issued on a repetitive basis to multiple people, set in advance with little or no negotiation occurring between the parties and blank spaces for filling in names, dates and signatures.  Standard form contracts can be found everywhere including airline travel, terms and conditions governing electricity and gas service, gym membership, online service contracts, catching a bus, furniture and electrical retailers, and so on.

Problems for consumers (and even small businesses) are that they often lack the resources and bargaining power to effectively review and negotiate terms in standard form contracts, that is, you get them on a ‘take it or leave it’ basis. These types of contracts contain a lot of legal ‘fine print’ that you as a consumer might not understand, you are often not given time to read it anyway, and if you ask a salesperson what it means you are often told not to worry. Standard form contracts also tend to be one-sided and benefit only the party who prepared the contract because they will want to shift as much of the risk with the contract onto you.

What does the term ‘agreement’ mean to you? How often do you think you enter into an agreement and what it means legally?

 Begin by explaining what the term ‘agreement’ means and then think about how often do you enter into an agreement and then comment on what you think it means legally.

An agreement should not be confused with a contract.  While a contract is based on an agreement, not all agreements are going to become legally binding, enforceable contracts. While both a contract and an agreement involve a meeting of the minds and an exchange of promises, a contract is a more formalised agreement and, unlike an agreement, comes with legal consequences and enforceable rights and obligations. An agreement is much more informal and doesn’t come with legal consequences.

An agreement is the first requirement for a valid contract. It is usually broken down into two parts: an offer by one party and an acceptance by another party (or parties) and while there is ‘a meeting of minds’, an agreement generally lacks definitive elements like intention and consideration that together make an agreement a contract.

How often do you enter into an agreement? For most people, including yourself, it would be several times a day unless you never leave home, go online, answer the phone, or answer the door to a stranger. But if you are an average person, then catching a bus to get to Uni, buying lunch, just spending money on something, or promising a friend after class would all constitute agreements.

Problem answer

A problem question. Just note that there are two parts to the question – could you win? And did the Supreme Court have jurisdiction (or the power to hear the matter)?

What do you think the effect of the CAS arbitration agreement between the parties was? Is there evidence of intention to enter into a contract from the conduct of the parties with each athlete promising, in favour of the others, to abide by the rules, among other things, to the selection process?

Because there was an exclusion clause contained in the documents, the Supreme Court would not have jurisdiction to hear the matter, and the appellant’s appeal would be dismissed. So, you wouldn’t win. It is worth noting that several interlocking documents may be evidence of or constitute a multipartite contract.

Who were the parties (the plaintiff and defendant)?

The Plaintiff was Mrs Carlill and the defendant was the Carbolic Smoke Ball​` Company

Briefly summarise the facts

The facts briefly were that the Carbolic Smoke Company had placed an advertisement in a newspaper for their products, stating that any person who purchased and used their product but still contracted influenza despite following the instructions would be entitled to a 100 pound reward. The company claimed that they had deposited 1,000 pounds in their bank to meet any claims.  Mrs Carlill saw one of these advertisements and bought the product. However, despite using it properly, she still caught the flu. The defendant comapny refused to pay the money promised in the advertisement claiming it was an invitation to treat.

What were the issues before the court?

The main issue before the court was whether the advertisement was an offer or an invitation to treat.

Why did the court find the advertising could be construed as an offer?

The Court of Appeal found for Mrs Carlill, finding that the advertisement amounted to a unilateral offer by the defendant company. In complying with the conditions stipulated in the advertisement, Mrs Carlill had accepted the offer. The Court also found that a reasonable person reading the wording of the advertisement, and who acted in accordance with the terms, would think that the company intended to be legally bound; an offer could indeed be made to the world; wording need only be reasonably clear to imply terms rather than entirely clear; and consideration was identifiable in the use of the smoke balls.

Just as a matter of interest, would you sue if you had bought a product that the seller guaranteed would work and it didn’t?

Well, what do you think? There is no right or wrong answer. This is just asking for your opinion but briefly explain why.

Explain what an offer is

The following are straightforward questions, but just note what they are asking. Is it to explain, discuss or nothing? Don’t ever just say ‘Yes’ or ‘No’ but always give an explanation for saying ‘Yes’ or ‘No’. Does it ask for an example? Or are there parts that you have to answer. So it is important to carefully read the question.

An offer is a clear expression of the terms under which a person is prepared to enter into a contract with another person and be bound by their acceptance of those terms.

What makes a statement an offer depends on what the parties had in mind (that is, the intention of the parties, which is considered in the next section) at the time the statement was made. In many disputes this will be impossible to determine, so the courts will rely on an ‘objective test of a reasonable person’. That is, would a reasonable person have thought that the offer was made with the intention of the person making it being bound as soon as it was accepted by the person to whom it was addressed?

List and explain the main rules relating to an offer

Just note with this question there are two things you need to do: list the main rules relating to an offer and explain them as you write them down.

In determining whether there is a valid offer or something else (for example, invitation to treat, inquiry, or supply of information which cannot be accepted), there must be:

• an intention or willingness to be bound;
• a firm promise; and
• communication of the offer (preferably in writing if the transaction is important to the parties, though it can be oral or by conduct and by the offeror or a person authorised to make the offer or communicate it (that is, an agent of the offeror).

The following rules apply to offers generally:

• They may be made to one person, a group, or to the world at large.
• They may be kept open if supported by consideration.
• All terms must be brought to the notice of the offeree and followed exactly.
• An offer can be terminated or revoked before acceptance as long as there is not an option to keep the offer open for a certain period of time.
• A counter-offer or rejection terminates an offer.
• Lapse of time if the offeror specifies how long the offer will remain open.
• Death of either party if it is for personal services.
• Failure of a condition, that is, a condition precedent or subsequent.

Explain what is required for an offer to be validly accepted.

Here is a list of what is required for an offer to be validly accepted but you would need to explain each.

If there is to be agreement, the acceptance:

• must be made in reliance on the offer
• must be strictly in accordance with the terms of the offer
• must be communicated to the offeror orally, in writing or by conduct
• cannot be a cross-offer
• can be accepted only by the party to whom the offer was made
• must be absolute and unqualified; and
• once made, cannot be revoked without the assent of the offeror.

Explain why it is necessary to distinguish between an offer and an invitation to treat from the perspective of both a customer and a seller.

Here is a question where you need to read carefully because there are two parts to it. You have to comment on why it is necessary to distinguish between an offer and acceptance from the perspective of a customer and a seller. So, begin by explaining what is an offer and then what is an invitation to treat. Then look at how a customer and seller view them.

An invitation to treat is not an offer and, unlike an offer, cannot be accepted. It is only an expression of a willingness to start the offer and acceptance process, which in time may produce an offer and acceptance, but the party making an invitation to treat never intends to be bound. An offer, on the other hand, is a clear expression of the terms under which a person is prepared to enter into a contract with another person and be bound by their acceptance of those terms. What makes a statement an offer depends on what the parties had in mind (that is, the intention of the parties, which is considered in the next section) at the time the statement was made.

Now comment on how you think a customer and seller view an offer and invitation to treat. Perhaps they don’t think about it but what do you think?

Under what circumstances will an apparent invitation to treat situation become an offer?

In this question note the word ‘circumstances’. It is plural, so don’t think you only need to mention one circumstance.

If it is clear in the circumstances that a party intends their words or conduct to constitute an offer, then the courts will be prepared to construe it as such. An example of where an advertisement was considered to be an offer rather than one inviting offers (called ‘an invitation to treat’) was Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, where the court found that the words used in the company’s advertising were sufficiently specific to show to a reasonable person that it intended to be bound. Similarly, the use of words such as ‘rain check’ or phrases such as ‘until stocks run out’ or ‘one per customer’ suggests that the offeror intended the offer to be promissory rather than a calling for offers.

Just note that it is important to look carefully at the words and/or conduct of the party making the offer (the offeror) to determine whether they are promissory or not, in order to see whether they could amount to an offer. Is there an intention or willingness to be bound?

Explain under what circumstances an offer can be terminated.

Again, the question uses the plural ‘circumstances’, and the word ‘explain’. So, two points to note. As in the last question, don’t think you only need to mention one circumstance BUT in addition, this time you have to explain what each circumstance is.

The circumstances under which an offer can be terminated include:

• Revocation – withdrawal of the offer by the offeror before the offeree’s acceptance.
• Rejection or counter-offer – where the offer is rejected by the offeree’s words, conduct or a counter-offer.
• Lapse of time – where the offeror has specified a time during which the offer will remain open. If no time limit is specified, then the offer will remain open for a reasonable time and this depends to some extent on the life span of the goods, that is, how long will they last?
• Death by either party – If the offeree learns of your death (and you are the offeror) before acceptance of the offer, then a purported acceptance will be ineffective because the offer will have lapsed. But where the offeree is unaware of your death, it is possible that a valid acceptance can still bind your estate if the offer does not involve the personal involvement of the deceased offeror.
• Lapse by failure of a condition – the offer could be subject to a condition, a condition precedent or a condition subsequent.

Explain the difference between a condition precedent and a condition subsequent and give an example of each in relation to the purchase of a car.

Just note that the question is not only asking you to explain what conditions precedent and subsequent are but also to give an example of each.

A condition precedent is a clause or term in the agreement stating that a term in the agreement must first be satisfied for a contract to come into existence. For example, a ‘I will buy the car subject to finance’ clause in an agreement, if not fulfilled, causes the offer to lapse.

A condition subsequent clause, on the other hand, is a term in the contract that may cause the contract to terminate if the parties have stated that the occurrence of a particular event will give the parties that right. For example, I will return the car in 7 days if  fuel consumption exceeds 15lt per 100kms.

Just note that the essential difference between the condition precedent and the condition subsequent is that in the latter the contract is already in operation.

Does acceptance have to be made strictly in accordance with the terms of the offer?

Here is a question where you can start with a ‘Yes’ or ‘No’ and then explain why.

 An acceptance converts the promise or promises of the offeror (represented by the offer) into an agreement. Before acceptance of the offer, neither party is bound to the agreement; after acceptance. The effect of acceptance is that the offeree agrees to take exactly what is offered and to pay the price required.

Can anyone accept an offer even if it is not made to them?

Note here that the key word is ‘not’. As in the last question, you can start your answer with a ‘Yes’ or ‘No’ and then explain why.

No. Only the person or persons to whom the offer was directed, or their authorised agent, can accept the offer. If someone else tries to accept the offer, that ‘acceptance’ is probably only at best an offer itself, which the original offeror, who is now the offeree, can accept or reject as they wish. Where the offer is made to the world at large, acceptance is by those members of the public who perform the conditions set out in the offer.

Can silence ever amount to acceptance?

This question could be answered with a ‘Yes’ or ‘No’ but don’t fall for that trap. Give an explanation. You could begin your answer with a statement that generally acceptance must be communicated to the offeror but there are situations where silence can amount to acceptance and then explain what they are.

There are situations where silence can amount to acceptance and they include:

• where the offeree has signed an agreement indicating continuing acceptance of delivery until further notification—for example, subscriptions to internet services or membership of a local gym debited on a monthly basis, where the offeree, by their conduct, has allowed work to go ahead and made progress payments and where you dispense with the requirement of communication, and acceptance is to be by performance of an act;
• where there is a history of prior dealings between the parties;
• where it is just and equitable – for example, where the conduct of the proposed tenant led the owner to believe that the tenant would lease the premises and the owner went ahead and undertook major demolition and construction work in that belief;
• by conduct, where the parties by their actions show that they intend to be bound; and
• where the postal rule applies

The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including their silence, as suggesting to the offeror that the offer has been accepted.

Could an offer sent by email be accepted by letter if the offeror had not specified a particular method of acceptance? Give reasons.

Just note here that you need to give reasons for your answer. It really means the same as ‘Explain’.

The answer is ‘probably’ because to some extent it is going to depend on what the offer was. If it was something perishable or goods in a volatile market, it can be implied that the offeror would have intended that acceptance be in the same mode or quicker than the way the offer was delivered. If the item was not perishable or it was clear to a reasonable person that a fast reply was not of the essence, then acceptance by mail would probably be acceptable.

Explain why the rules on acceptance should differ between contracts by post and contracts by instantaneous communication such as email.

The difference lies partly in technology. Contracts by post have been overtaken by instantaneous communications and it has impacted on when agreement may be reached.  Where the parties contemplate the use of the post as a medium of exchange of promises, the offeror must have contemplated and intended that the offer be accepted by the act of posting, in which case the rules as to the time of acceptance change. Thus:

• an offer made by letter is not effective until it is received by the offeree; and
• acceptance is effective as soon as it is posted.

But postal acceptance is much slower as a contract is formed when the letter goes in the post box. The fact that the offeror is not aware of the posting of the letter, or even if the letter is lost in the post, or is wrongly addressed to the offeree or is even never delivered does not matter. The post office is the agent of the offeror (unless the offeror states otherwise) and this means that communication to the post office is communication to the offeror but the offeror will not know whether the offer has been accepted until it arrives in his letter box some days after it was posted by the offeree. By posting the acceptance, the offeree has done all that is required of them and even if time is of the essence, it could take days for the acceptance to reach the offeror.

The main reason for different rules between acceptance by post and instantaneous communication or e-commerce is the benefit of speed of acceptance. The time of receipt of the electronic communication is the time when the electronic communication is capable of being retrieved by the addressee or, if no system is designated, when the electronic communication comes to the attention of the addressee. In other words, almost instantaneously.

How can businesses that make offers over the internet protect themselves from the risk of loss associated with the rules of offer and acceptance?

Just make sure that you discuss offers over the net and not offers generally.

To minimise problems with contract formation where the method of transaction is email or the internet, the person controlling the transaction should make it clear:

• what is to be taken as an offer or what is required for an acceptance
• when electronic communications are to take effect from, for example, when subscriptions are to end, as well as
• specifying that property in the goods will not transfer to the buyer until payment has been processed.

Problem answer

Another problem question. What is important here is what time did the acceptance take place? In addition, you need to comment on whether La Forrest accepted the offer and whether it was possible to have an acceptance by email to create contractual relations. So, if you are smart you will refer to the Electronic Transaction in your answer.

Yes, acceptance had taken place and La Forrest would be bound. An acceptance by email was capable of creating legal relations under the Electronic Transactions Act 2021, and in this case the parties had reached a binding agreement. While the Electronic Transactions Act provides times for receipt and dispatch, there was not a clear indication of the time at which the contract was formed. An acceptance by email was capable of creating legal relations under the Electronic Transaction Act 2021, and in this case the parties had reached a binding agreement. Formation of the contract occurred when the offeror received the offeree’s acceptance at the server they had stipulated. This was either when the electronic message entered the designated information system because the offeror has designated their email address; or the place where the addressee had their place of business.

It is also worth noting that a series of emails together are capable of creating legal relations as they embody all the terms that are legally necessary to form a contract.

Chapter 6

Must intention to create legal relations be present in every contract?

Even though it appears the questions could be answered with a simple ‘Yes’ or ‘No’, still explain why you answer ‘Yes’ or ‘No’.

The fact that the parties have reached an agreement is only the start of determining whether there is a contract. The next step in determining whether there is a contract is what the parties intended. Did the parties must intend to create legal relations? This can be express (words, writing or conduct) or implied; but if it is not present, there can be no contract. It must be present in every simple contract.

Most commercial agreements inherently possess this intention. However, it can be difficult to establish in domestic or social agreements. The courts will check to see if the parties meant to make a legal contract by looking at their objective intention.

How can you tell whether an advertisement is an offer or an invitation to treat? Explain.

Begin by explaining what an offer and invitation to treat are. Then explain how you tell the difference.

Intention can be determined by considering the relevant context and the relationship between the parties, and determining what inferences can be drawn from that; that is, by judging the parties on what they had said, written or done as well as taking into ‘account the subject matter of the agreement, the status of the parties, their relationship to one another and other surrounding circumstances’. The parties rarely make any direct or express reference to the question of intention to contract within the contract itself. Where references are made, they are generally found only in commercial (or business) agreements and are invariably expressed in a negative way; that is, by way of terms that expressly and clearly state that the parties don’t intend to be legally bound.

Why do you think that in most agreements of a commercial nature the law assumes that the parties intend to create legal relations?

Begin with an explanation of what an intention to create legal relations means. Then go on and explain why there is a presumption of an intention to create legal relations in a commercial arrangement.

Intention to create legal relations is defined as an intention to enter a legally binding agreement or contract. In social or domestic agreements, the parties do not usually contemplate legal relations because if one party fails to honour their promise, the consequences are not usually financially significant.

In business or commercial arrangements where the relationship is not personal and is based on a business or commercial transaction, it is presumed that the parties intend to create legal relations. This is generally because of the financial consequences involved in doing business together. Each party involved in the contract is accepting the terms and providing consideration with the intention for the contract to be enforceable by the law. It gives the parties an element of certainty for the parties to the contract that in the event of a breach, there will be legal consequences. In determining if there is intent, the courts take an objective approach.

Is it possible to avoid creating legal relations in a commercial/business agreement? Explain.

While it would be easy to just say ‘Yes’, don’t. The question asks you to ‘Discuss’, so that means writing an answer to support ‘Yes’.

The parties can negotiate on the principal terms of a proposed business or commercial transaction but intend to enter into a formal contractual document at a later date. In such a case, even though there may be offer and acceptance, the parties may make their agreement ‘subject to contract’ or ‘subject to preparation of a formal contract’, thus avoiding creating legal relations until the execution of a formal agreement.

The parties to a commercial agreement may also avoid a binding agreement by including an “Honour clause”, indicating that the agreement is binding in honour only and not legally binding.

Why aren’t voluntary agreements contracts? Explain.

Quite simply, there is no evidence of an intention to create legal relations by the parties in the agreement. Where there is an agreement, it is usually clear from the surrounding circumstances that a contract was not intended at the time of entering into the agreement. There is a lack of mutual intention to create a legally binding agreement. Compare this with a commercial situation where a reasonable person looking objectively at the facts would conclude that the parties would have intended an intention to create legal relations.

Can you list any agreements that you could enter into daily that could result in an inference that contractual relations were not intended?

Up to you to answer this one. The question is asking you to list any agreements that you could enter into daily.

Why do you think that in most agreements of a voluntary nature the law assumes that the parties do not intend to create legal relations?

Begin by explaining what a voluntary agreement is, and then why the law assumes that the parties do not intend to create legal relations.

A voluntary agreement can be defined as an agreement where the parties normally do not intend to create legal relations. While there might be an agreement between the parties, it is usually clear from the surrounding circumstances that the parties did not intend at the time of entering into the agreement to create a contract, for example, where the work of one party was voluntary and they did not want payment for their services.  Judged objectively, a reasonable person would conclude that the agreement was a voluntary one, and that the parties did not intend to create relations, so no contract.

Is it possible to create legally binding agreement out of a social or family relationship? Explain why.

While you could answer this as ‘Yes’ or ‘No’, just note the question is asking you to ‘Discuss’ so you need to add your reasons why you said ‘Yes’ or ‘No’.

It is presumed that the parties in a social or family relationship do not intend to create legal relations, even though the agreements may have contained promises made by the parties.  In these cases the court objectively determines whether the parties intended to create legal relations. If no such intention exists, the agreement will be no more than an unenforceable promise. This is because it is generally unusual for an arrangement between family members or social outings to be thought of in terms of legal consequences if something goes wrong, for example, you agree to go to the movies with a friend and your friend forgets to turn-up, are you going to sue them?

Agreements made in family or social relationships can sometimes be legally binding. It depends on the merits of each case and to determine whether there is the required intention, the plaintiff has to produce evidence to show that a contract was intended. The court will then look at the conduct of the parties and decide whether a reasonable person, in the same position as the plaintiff, would have intended to create an enforceable contract. If the consequences for the plaintiff were serious, then the plaintiff will probably succeed in their claim. However, if you are considering suing your friend for not turning up at the movies, forget it.

Agreements made in a domestic relationship are considered unenforceable, for example, agreements made while the husband and wife still live together or in a continuing de facto relationship, it is assumed that the parties don’t intend to create legal relations. However, if the parties are separated at the time of the agreement, then the agreement will be enforceable.

In the agreements that you enter into, do you consider the question of intention? Explain why.

While you could answer this as ‘Yes’ or ‘No’, just note the question is asking you to ‘Discuss’, but also note that this time the question is focussing on whether you think about the question of intention when entering into an agreement.

Chapter 7

Should consideration still be an essential element in a contract today? What does it achieve?

Begin with an explanation of what consideration is and then explain whether you think it should still be considered an essential element.

Explain the distinction between executed, executory and past consideration.

Define each of the terms and to you should have answered the question.

Executed or present consideration is where an act is done in return for a promise.

Executory or future consideration is where the parties exchange promises, each promise being consideration for the other. In this type of situation, consideration is intended to be performed in the future.

Past consideration (or past performance) is where the promise is given after an act has been performed and is generally not enforceable.

Why don’t formal contracts, such as deeds, require consideration?

Begin by explaining what a formal contract is and then explain why consideration is not needed.

A formal contract is a written agreement between two or more parties that outlines the terms of their relationship and is legally binding. A deed is a written agreement that confirms an agreement

between parties which does not require consideration, but must be signed, sealed and delivered. It must state that there is an intention to be a deed. It derives its validity from itsform alone.

Why is past consideration no consideration?

Note the question is asking you what is past consideration, so define it and explain why it is no consideration. A good question to answer with an example after your definition.

Past consideration (or past performance) is where the promise is given after an act has been performed and is generally not enforceable. Let’s say you agree to clean your friend’s car. After you have finished he says, “Great job!  I’ll pay you K$50.” Is there a contract?  Your ex-friend does not have a contractual obligation to pay you because your act occurred in the past.  It was never agreed that you should clean your friend’s car. They might be grateful and could feel a moral obligation towards you but there is no contract. To have legal consideration the parties must reach an agreement prior to cleaning as to what each party will give and what each party will get.

Why is repeating an existing duty not good consideration

Repeating an existing duty owed to the promisor is insufficient consideration because there is no detriment. If you are already contractually bound to the promisor to complete a task, the general rule is that in performing that task you are doing no more than you contractually agreed to do. However, acts in excess of your duty would amount to good consideration to support a new contract

Problem answer

Another problem question. The questions is about forbearance to sue, so begin by explaining what it is and then whether it can be used here. Interestingly, the claim is probably bad in law but that will not matter.

Forebearance to sue can amount to good consideration. It is good consideration even if the promise is to forbear only for a limited period or to dispense A promise not to enforce a valid claim and/or a promise to give up a claim entirely can be good consideration for a promise given in return. with a doubtful, but reasonable, legal claim.  The claim that is promised to be relinquished must be:

• honestly held (there must be a genuine dispute); and
• one in which the claimant has a bona fide belief that the liability is real at the time of agreement.

In this case there appears to be a genuine dispute between the parties as to their respective rights and obligations, and the agreement to repair the car was a compromise of that dispute. The compromise was good consideration for a new contract. If a party choose to compromise a claim, there must be a genuine dispute and the bargaining aspect of the agreement must be evident between both parties. It does not matter that the plaintiff may not actually have had an enforceable claim.

Chapter 8

Problem answer

A problem question concerning infants. Just remember that the law looks at beneficial contracts or service where infants are concerned as still being valid if they contain unfavourable terms. So begin by explaining what is a beneficial contract of service, then what the courts look at and apply to the facts above.

When looking at covenants in contracts of employment, look at the contract as a whole. In this case, even though the clause about not practising within 200kms of Port Moresby may be onerous, the contract taken as a whole is probably okay. As the original contract was for the defendant for education and employment, while it contained onerous terms, weighed against the benefits, looking at the contract as a whole it was for the benefit of infant.

Discuss how a court decides whether goods or services purchased by an infant will result in a valid contract.

Note the question is asking you how a court decides (not how you decide) whether goods or services are capable of being necessaries. Don’t comment on beneficial contracts of service. So begin by defining necessaries, and then what the courts look at to establish if the goods or services are necessaries.

The definition of necessaries includes articles and services essential for the reasonable comfort of the infant, as well as basic food, medicine, education, clothing and shelter. This means that lifestyle and the infant’s situation must be considered when trying to determine whether the goods or services are capable of being necessaries or not looking at the transaction as a whole. Are the goods capable of being necessaries and if they are, are the goods or services necessaries in the particular circumstances (a question of fact)?The court will also contract consider whether, on balance the contract is favourable for the infant, which means that the infant should only pay a reasonable price for the goods or services.

Samantha, an infant, obtained a loan of money from Lucy by telling her that she was 19 when in fact she was only 16. Samantha subsequently defaulted on the loan repayments and Lucy wants to know whether she can recover her money.  Advise Lucy.

Ignore the criminal law issue here. As a rule of thumb, infants normally do not have the capacity to obtain a loan because they lack the ability to understand what they are getting themselves into and they can lack a capacity to repay.

As this appears to be an unsecured loan to Sam who has obtained a load for no known purpose, the contract would appear to be unenforceable and Lucy would be unable to recover the money.

Ryan, a 78 year old-alcoholic who, during a drinking session with Bromley, was induced to sell his farm to him for much less than its market value. A written contract was drawn up at the Bar and signed by both parties. Ryan later refused to go through with the sale.

Is the contract that Ryan signed enforceable by Bromley? Discuss.

Note that Ryan is a 78 year-old alcoholic, so the question here is whether Ryan would understand what he was signing.

Contracts with a mentally unsound or intoxicated person are usually regarded as being voidable at the option of, in this case, Ryan unless they are necessaries. From the facts, the sale of his farm would not be regarded by the courts as being something that fell within the ambit of necessaries. So where the goods are not necessaries, Ryan may be able to repudiate the contract if and when he sobers up. The onus of proof is on Ryan and must occur within a reasonable time of him regaining sobriety or soundness of mind. In this case Bromley would have realised Ryan was seriously affected by alcohol and that his judgment would have been seriously affected as a result. The disability was present at the time of contracting.

Steinberg, a minor, applied for and was allotted shares in a company when she was 16. She received no dividends and attended no company meetings. Before she turned 18 she repudiated the contract and tried to recover the money she had paid for the shares. Can she? Discuss.

In this case, just note her age when Steinberg repudiated the contract and what  the contract was about. Unlike question 2 above, in this case she has acquired an interest in subject matter of a permanent and continuous nature, that is, the purchase of shares.

This is a contract that is valid unless and until it is avoided, that is, it is voidable. When an infant repudiates a voidable contract during infancy, which in this case she did before she turned 18,  the rights and liabilities that accrue after repudiation cease. This means that Steinberg will remain liable for any obligations accrued up to the time of repudiation of the contract unless there has been a total failure of consideration.

Money paid under a voidable contract is not able to be recovered unless the Steinberg has received no benefit from the contract what so ever; that is, there has been a total failure of consideration. In this case, while Steinberg could have her name removed from the company register and she could rescind the contract, she would not be able to recover the money she had paid for the shares. The allocation of the shares had conferred a benefit on her, so there was not a total failure of consideration.

Chapter 9

Problem answer

In this fact situation, you need to work out first what area of law may apply. Read the facts carefully and you should realise that there has been a mistake by the Commission as to the whereabouts of a tanker. What type of mistake? What are elements that need to be established to establish the mistake. Apply to the facts.

From the facts it appears that this would be a case of mistake as to the existence of subject matter. A common mistake must involve the existence or identity of the contract’s subject matter. The Commission, by calling for tenders has impliedly promised that there is a tanker and that it can be located at Jourmaund Reef, leading you to believe that the tanker existed. On the strength of this promise you have successfully tendered for the salvage of the tanker, then you hired a ship, fitted it out and proceeded to the location given by the Commission and spent a month fruitlessly searching for a ship that didn’t exist. The acceptance of the tender by the Commission created a contract which the Commission has broken by its failure to perform, that is, to provide a salvageable tanker. The Commission cannot now not accept its responsibilities.

Explain why money paid under a mistake of law may be recoverable while a party who makes a mistake wrongly interpreting a statute, or a mistake of judgment (for example, buying clothes and then not liking the style or colour) or a mistake as to quality, generally cannot rely on the mistake to avoid the contract.

Begin by explaining what a mistake is and that only mistakes of fact can render a contract void.

Only mistakes of fact can render a contract void. If one of the parties makes a mistake of law (for example, wrongly interpreting a statute), a mistake of judgment (for example, buying clothes and then not liking the style or colour), or a mistake as to quality, then that party generally cannot rely on the mistake to avoid the contract. ‘Buyer beware’. However, money paid under a mistake of law may be recoverable if the money was paid by the payer under a mistaken belief that they were under a legal obligation to pay it or that the payee was legally entitled to payment of it and is recoverable from the payee (on the basis of restitution).

You were in London when you received an order from a Middle East agent for ‘Moroccan horsebeans described here as feveroles’. Not knowing what the term meant, you asked the defendants, who replied that feveroles were the same as horsebeans, which they were in a position to supply. The plaintiffs then ordered a quantity of horsebeans from the defendants and the goods so described in the written sale document that was drawn up were delivered to the plaintiffs, who in turn shipped them to Egypt. When they reached Egypt, the plaintiffs refused to accept them since they were not feveroles. Had the plaintiffs any cause of action against the defendants?

Another case of mistake. Read the facts again. The order was for ‘feveroles’, not ‘Moroccan horsebeans’ and the plaintiff was given the wrong information by the defendant. The buyer refused to accept delivery as they were not what they ordered.

This would appear to be a case of mutual mistake where the parties are talking about different things, so there is no real agreement between them. Each of the parties is unaware of the error and are mutually mistaken as to what the other party wants. In other words, the offer and acceptance are not the same, so the contract is void ab initio.

Buka has a very poor understanding of English. When you approached him with a document for his signature, Buka was under the honest and mistaken belief that what he was to sign was only a letter of introduction to his agent. What he in fact signed was a lease of his shop premises to you —which at no time did Buka intend or want to do. You are now suing for specific performance (to force him to give you his shop) and damages for breach of contract. Advise Buka.

In this fact situation, note that Buka has a poor understanding of English and doesn’t understand what it is he is signing. A classic case of non est factum (it is not my deed). Begin by explaining what non est factum means and then apply your understanding of the term to the facts.

Non est factum (Latin for “it is not [my] deed”) is a defence that allows a signing party such as Buka to escape performance of the agreement as it is fundamentally different from what he thought or intended to execute or sign, making the contract void.

Buka, as the signing party, would have to argue that the agreement was void because it was radically different from what he thought it was. To succeed in a plea of non est factum, two conditions must be met:

• Buka must believe that the document he signed was radically different from what he believed it to be—the mistake must go to the fundamental nature of the document and not its contents. From the facts, Buka thought he was signing a letter of introduction to his agent, not a lease of his shop; and
• there must be an absence of carelessness or negligence in the execution of the document. Buka appears to have signed the `document in good faith and did not understand it was for the lease of his shop because of his poor understanding of English.

Buka could successfully argue this was a case of non est factum and that you will not get either damages or an order of specific performance.

Explain why you would prefer to base a case on unilateral mistake rather than common mistake or mutual mistake, if there is a third party involved.

In this question, begin by explaining what unilateral, common and mutual mistake are and then which of the three mistakes is your preference if a third party was involved.

In the case of a common mistake, the parties acknowledge the existence of an agreement (for that is admitted) but, because of a fundamental assumption as to the existence or identity of the subject matter, they wish the court to set the agreement aside from the beginning. A common mistake that goes to the very root of the contract will potentially render the contract void ab initio (from the outset).

In the case of mutual mistake, as the parties are talking about different things, there is no real agreement between them. If the conflicting understanding is so severe that the courts cannot find an agreement, the contract is generally treated as void initio (from the outset).

In the case of unilateral mistake, there is a lack of agreement between the parties. However, here only one party to the contract knows, or ought to be reasonably aware, of the mistake and does nothing to correct it. The contract is usually voidable which means the innocent party, when they act, can rescind the contract or continue with the contract and hope it is okay (remember what voidable means).

So, what is your preference?

Is there a contract between you and Bruce? Explain why/why not. Do you think you have done enough to check on the identity of Bruce?

Read the whole situation and questions carefully and note that you are asked to do two things: consider whether there is a contract and then whether you did enough to check the ID of the person whom you dealt with. You are led to believe that the customer is someone else. Is this because of a mistake or a misrepresentation over identity? But only one party is mistaken, so this is a case of unilateral mistake. So, begin by explaining what unilateral mistake is and then what the situation is where the parties meet face-to-face. 

This a case of unilateral mistake as you are led to believe by the customer that he is Bruce Wayne, an MP. A unilateral mistake involves a lack of agreement between the parties. Here only one party knew of the mistake as he created it and was obviously not going to do anything about correcting it. A case of fraud but ignore the criminal law in this question.

Where the parties meet face-to-face, the onus is on you (because you are the plaintiff pleading the mistake of identity) and you are going to have to show that you intended only with Bruce and no-one else, that you never intended to deal with whoever the customer was, and that you took reasonable precautions to check the customer’s details, and the customer knew you never intended to deal with anyone but Bruce.

If these points can be established the court will treat the contract as void. However, if the intention is to deal with the customer, whoever they might be, then the contract can only be treated as voidable. That would not be a problem if it was a two-party situation but here you have Brooks, a third party and a voidable contract. If the swindling customer can sell the goods before you realise you have been swindled and can rescind (remember it is a voidable contract and that means it is valid and binding until rescinded), a purchaser buys the jewellery for value in good faith gets good title and you are left with the problem of finding the swindler if you want to get your money back.

The question you need to consider here is whether you think you have done enough to establish that the customer was a fraudster and not Bruce?

 The vendor of a farm that you are interested in buying told you that it had never been used to raise cattle but in his judgment the property would easily be capable of carrying 500 cattle. This proved to be untrue. Can you now avoid the contract? Explain how.

From the facts you have been given, this is probably a case of innocent misrepresentation. The vendor has told you the property had never been used to raise cattle but in his opinion it could carry up to 500 cattle. Think about the three possibilities for misrepresentation – fraudulent, innocent or negligent. Briefly explain each and then suggest which is likely to apply.

From the information given, it would appear to be a case of innocent misrepresentation. An innocent misrepresentation is a misstatement of a material fact, but made without intention to mislead, that is, in good faith by the farmer and not known by them to be false. You are told the farmer had never used the property to raise cattle but, in his judgment, thought it could easily carry 500 cattle. It can’t be a fraudulent misrepresentation because the farmer’s statement was not one of fact made knowingly to be untrue. Note he said he had never raised cattle but in his judgment thought it would carry 500 cattle. And probably not a negligent misrepresentation, again because of the qualifications in the farmer’s reply, that is, he has told you he never raised cattle and so his judgment is suspect because he has never raised cattle. This would alert a reasonable person to make further enquiries.

Eddie had a 2023 Toyota Prado Land Cruiser, which he wanted to sell. He advertised it for sale for K100,000. Eddie eventually sold it to Maria, who took it away, after giving him K90,000 cash. Unfortunately, the notes were forgeries and when he took the money to the bank the following morning, the bank refused to accept it and called the police. In the meantime, Maria sold the car through a firm of car dealers to Intergalactic Finance, who had no notice that Maria had acquired the car fraudulently. You bought the car in good faith and without notice of the defect in title. Do you have good title to it?

In this case, the facts tell you that this is more likely a question of unilateral mistake than fraudulent misrepresentation, so begin by explaining why it is not fraudulent misrepresentation and why unilateral mistake. Then explain what sort of title did Intergalactic get and then what sort of title do you get?

A representation is a statement of past or present fact made by one party either before or at the time of making the contract that induces the other party to enter into the contract. Fraudulent misrepresentation refers to a deliberate false statement made with the intention of inducing someone to enter a contract. The contract, as it is induced by fraud, is voidable at your option if you are the deceived party because it does not represent the parties’ true agreement. The problem you have here from the facts is that it doesn’t appear that Maria has made any false representations.

Is it a case of unilateral mistake then? In the case of a unilateral mistake one party to the contract knows, or ought to be reasonably aware, of the mistake and does nothing to correct it. Eddie has accepted the K90,000 under the mistaken belief that the notes were good currency and was not aware of a problem until he went to the bank the following day.

The importance of unilateral mistake is that it makes the contract void ab initio (void from the beginning). This means that a third party such as, in this case, Intergalactic Finance, cannot get good title to Toyota. This means they cannot pass on good title to you as they don’t have a good title. Eddie still has ownership and can claim his car back from whoever has possession, which is you. You will have to get your money back from Intergalactic Finance as you bought the vehicle from them. They, in turn, have to find Maria, and try and recover their money from her.

What would you need to establish if you were the plaintiff in order to succeed in an action involving a negligent misrepresentation? Explain why.

Explain what a negligent misrepresentation is and what you need to establish a case in negligent misrepresentation.

Negligent misrepresentation lies in the tort of negligence, not contract. It arises when a person provides oral or written advice to another person in ‘serious circumstances’, knowing that the information or advice may be acted on, and fails to take reasonable care to ensure the accuracy of the information.

To succeed in an action for negligent misrepresentation, you have to establish that a ‘special relationship’ existed between you and the other party and that you relied on the representation, trusting the other party to exercise a duty of care in the giving of the information, realising that you intend to act on that advice or information, that it would be reasonable for you to rely on it and that you did suffering damage as a result.

Explain the meaning of the term ‘duress’ and distinguish it from ‘undue influence’.

Explain duress and undue influence and then you should be able to explain the difference between the two actions.

Duress is the use of violence or illegal threats against a person, their goods or their economic interests to force them to enter into a contract against their will. The duress does not have to be the sole reason for the coerced party entering into the contract, it just has to be one of the reasons. The onus is on the party who has made the threat to show that it had no effect on the other party, and if they cannot do that, the contract is voidable at the option of the coerced party because there is a lack of voluntary agreement. In the case of economic duress, restitution and avoidance of the contract are the only options to a plaintiff. Damages are not available.

The difference between duress and undue influence is the latter has its origins in equity and involves the improper use of a position of influence or power possessed by one person over another in order to induce the latter to act for the former’s benefit. The contract is voidable at the option of the innocent party, and the usual remedy is rescission.

Cases of undue influence fall into one of two classes. Briefly explain what the two classes are and give examples.

Begin by explaining what undue influence is and then explain what the two classes are.

It can exist in two types of situation: where there is a special relationship of trust and confidence between the parties such as parent and child and doctor and patient, but it can also exist where there is no special relationship but only if the weaker party is able to prove that the other party (the dominant party and the defendant) exerted influence over them, and thus obtained a contract that they would not otherwise have made, for example, where the plaintiff has little or education, or where one party occupies a position of dominance or influence over the other party. The contract is voidable at the option of the innocent party, and the usual remedy is rescission.

Allcare joined a religious order in 2019 aged 19 as a novice nun. In taking her vows of chastity, obedience and poverty she had to give away all her goods and money which she donated to the sisterhood. She left the sisterhood in 2024. Is Allcare entitled to get her goods and money back? Explain why.

In this fact situation, do you think there is a special relationship of trust and confidence between Allcare and the religious order? Is this an example of a special relationship of religious adviser and devotee involving undue influence?  What do you think a religious adviser does? Was the transaction a voluntary one? Is the age of Allcare important? So begin by explaining what undue influence is and then what has to be established. Don’t forget to say whether you think Allcare can get her goods back?

Undue influence, which is based in equity, involves the improper use of a position of influence or power possessed by one person (the dominant party) over another (the weaker party) in order to induce the latter to act for the former’s benefit. The contract is then voidable at the option of the innocent party, and the usual remedy is rescission.

Is this a case where there is a special relationship between the parties though? From the facts it appears to be a case where it can be argued that a special relationship might be presumed to exist. Note the use of the word ‘might’. Undue influence is presumed to exist in situations where there is a special relationship of trust and confidence between the parties such as religious adviser and devotee.

Are the roles of religious adviser and religious order sufficiently similar to create a special relationship that the law might recognise as a special relationship for the purposes of undue influence? A religious order is akin to a spiritual family within the church, its members living by a specific set of rules and giving up what we might consider to be a ‘normal life’ like marriage and personal property which, in the case of the latter, Allcare gave up when she joined.

If we accept that this is a case where a special relationship can be presumed to exist, then the onus is on the sisterhood to prove that Allcare’s giving up of all her money and property was a voluntary one and there was no undue influence exercised by the religious order. Given the Allcare was 19 at the time she made the decision to join a religious order, she would be considered to be an adult and there is a lack of evidence to show that the decision to join was anything but voluntary, Allcare would seem to have little chance of getting her goods or money back.

Problem question

In this fact situation you are given a head start in terms of what area you need to consider. Here begin by explaining whether you think improper influence and undue influence are. Do they have different meanings or are they one and the same. Or could both apply? Note the question also has two parts because you need to make sure you also explain who has the burden of proof.

Improper influence is a term used to describe a situation where a person exerts influence or pressure or influence an another in a way that is considered unfair or unethical and includes undue persuasion and nepotism. Undue influence, on the other hand, looks at the quality of the consent given to the contract, that is, did one party influence the other party so much that consent was not freely or voluntarily given? The two are closely related.

From the facts, this case appears to be more about undue influence where no special relationship existed, so it must be proved as a fact. Was there, before the transfer of the cottage, a relationship of trust and confidence between Buttress and Johnson, such that it could be said that the presumption of undue influence arose? Johnson was in a position where she had influence over Buttress. From the facts, the gift could be presumed to be the result of that influence and as a result Johnson would have to rebut the presumption that Buttress had not exercised his free will unhindered by her influence.

Just as a matter of interest, this was an actual case (Johnson v Buttress [1936] HCA 41), and the decision could have gone either way. There was a long standing friendship between Johnson and Buttress and during that time there many acts of kindness by Johnson, but it was not enough to rebut the factors that may constitute a special disadvantage in establishing unconscionable conduct which in this case include his illiteracy, ignorance of what was happening, and his disposition which together suggested vulnerability.

Problem question

Another problem involving  unconscionability but in this case about the bank manager’s behaviour and whether it was unconscionable. Begin by explaining what you think unconscionable conduct means and then go on and apply it to the actions of the bank manager.

In its equitable jurisdiction the court may set aside a contract as unconscionable where there has been an abuse by the defendant bank of their superior bargaining position in their dealings with the Amadio’s. Unconscionable conduct leading to an unconscionable contract involves questions of fact and degree, and each case must be judged on its facts. If the facts show that the conduct of the defendant was such that in its factual setting fairness and good faith could properly be expected to be exercised, and it can be shown that they were not, then the conduct of the defendant bank may be described as unconscionable.

Not every unfair contract is going to be set aside on the grounds of unconscionability. For a contract to be set aside on the grounds that it was unconscionable, the Amadio’s must prove that:

• They were in a position of ‘special disadvantage’ at the time of the contract.
• It must have substantially affected their ability to protect themselves.
• The bank must have known, or should have known of the Amadio’s ’special disability.’
• The bank manager had taken unfair advantage of it in such a way that the actions of the bank manager were unconscionable (that is, unfair or unjust).

There are two questions to think about. Was the conduct of the bank such that it could be regarded as unconscionable? Had the bank taken unfair advantage of its superior bargaining position for its own commercial gain?

Here the bank was in a superior bargaining position to the Amadios’, as it knew both the financial position of the son and that his parents didn’t fully understand what they were entering into. The parents were, in fact, in a position of special disadvantage because they didn’t understand the extent of their liability under the agreement. Nor did they understand the financial position of their son’s company, which was being propped up by the bank. Essentially, there was an abuse by the bank of its superior bargaining position in its dealings with the Amadios as they were clearly under a serious disadvantage (lack of English and no formal education).  Once it was established that the Amadios’ were under a serious disadvantage, the onus shifted on to the bank to establish that the transaction was fair, just and reasonable.

From the facts, it appears that the actions of the bank manager in his dealings with the Amadio’s would amount to unconscionable dealing due to their lack of knowledge or education and the consequent imbalance in bargaining power between the parties and as a result would be set aside. If the Amadio’s has sought independent legal advice, or the bank had provided or suggested they got independent legal advice, then the unconscionability argument probably would not have succeeded.

Section 4 of the Fairness of Transactions Act 1993 would, in addition to the common law would be available here for the Amadios.

Problem question

Another case involving the question of unconscionability.  Read the facts again and note the actions of Ms Louth in relation to Diprose and don’t forget t think about whether you would have decided the same way if the roles of the parties was reversed. Again, begin by explaining what you understand unconscionability to be and whether the relationship between the parties is one where there is a special disadvantage.

In its equitable jurisdiction the court may set aside a contract as unconscionable or unfair where there was inequality bargaining power between Louth and Diprose because of his infatuation with her, that is, Diprose was under a special disadvantage because of his infatuation which has caused him extraordinary vulnerability when she created a false crisis (on lying to him about being evicted).  Unconscionable conduct leading to an unconscionable contract involves questions of fact and degree, and each case must be judged on its facts. If the facts show that the conduct of the defendant was such that in its factual setting fairness and good faith could properly be expected to be exercised, and it can be shown that they were not, then the conduct of the defendant bank may be described as unconscionable.

For a contract to be set aside on the grounds that it was unconscionable, the Amadio’s must prove that:

• Diprose was in a position of ‘special disadvantage’ because of his infatuation.
• It must have substantially affected their ability to protect themselves.
• Lough must have known, or should have known of Diprose’s ’special disability.’
• Louth had taken unfair advantage of his infatuation in a way that was unconscionable (that is, unfair or unjust).

From the facts, his infatuation led to vulnerability in the form of emotional dependence. As her conduct was unconscionable, the court would order that the ownership of the house be transferred to Diprose. If the position of the parties were reversed, then Louth probably would have been able to keep the house.

Chapter 10

Brass hired a roulette table, with all the ancillary equipment needed to play roulette, from ACME Hire. When they entered into the contract, neither party was aware of the provisions of their state’s gaming and betting legislation that made the game unlawful but did not prohibit it. When Brass discovered the Act, he refused to pay the hire price. Can ACME Hire recover the hire charges? 

The focus of the question is again on the question of legality. Is it a crime to be unlawful?

The question to consider here is what does the term “unlawful” mean? Is it the same as ‘offence’ or ‘illegal’? Playing roulette under gaming and betting legislation is unlawful but not inherently criminal or illegal. The term ‘unlawful’ means something is not authorised or permitted by law. It is against the law and can result in legal consequences as a result of a person’s actions that might be in breach of the gaming and betting legislation, but it is not necessarily criminal. No criminal sanctions are attached to the Act and nothing in the Act makes playing it a criminal offence as it is not prohibited. ‘Illegal’, on the other hand, refers to something that is prohibited, punished by law, and is carries a penalty.

The facts suggest that the agreement between the parties is an unlawful agreement. The terms of the agreement go against the gaming and betting legislation but while the agreement is unlawful it is not prohibited. Courts generally do not enforce illegal agreements and treat them as contracts void ab initio (they are void from the beginning) and the contract is treated as if it never existed. Neither party is bound by its terms.  The unlawful conduct, that is, the playing of roulette, does not gives rise to a civil claim for damages.

Explain why a restraint clause in a contract of employment is most likely to be struck down by the courts. In what circumstances will a restraint clause be likely to be considered valid in a contract of employment? 

Note that there two parts to this question. The first part is asking you to explain why a restraint clause in a contract of employment is often struck down. The second part is asking you to comment on when such a clause may be valid. So begin by explaining what a restraint of trade clause is, then what its purpose is, and why they are often struck down by the courts.  Then explain why there are exceptions to the rule where the restraint clause may be considered valid.

While a person should be bound by their contracts, one of the fundamental rights in contract law is a person’s freedom to contract. Contracts, or clauses (called ‘covenants’) in contracts, that attempt to restrict or restrain the freedom of one party to contract are not illegal; rather, they are unenforceable at common law because they are against public policy unless it can be shown by the party relying on the clause is protecting a legitimate business interest such as goodwill, trade secrets or confidential information, and trade connections such as customer lists, and is reasonable. As a general rule, if there is an inequality of bargaining power between the parties, the courts will interpret these clauses contra proferentem; that is, strictly against the party relying on them (in this case, the employer). As a result, if the clause is merely an attempt to limit competition, the courts will usually find little difficulty in striking down the clause.

The following factors should be taken into account when trying to decide whether information was ‘secret’ and therefore protectable, or ‘general know-how’ and generally not protectable:

• the extent to which the information is known inside and outside the business
• the value of the information to competitors
• the effort spent in developing the information, and
• the difficulty in acquiring or duplicating such information.

In order for such a clause to be valid, it must be shown that:

• the restraint is reasonable, and
• there is some proprietary or legitimate commercial interest owned by the employer that requires protection.

In the case of trade secrets, an employer may generally validly restrain an employee from making any unauthorised use of that information both while working for them and for a reasonable time after the contract of employment has ended. An employer is entitled to protect and safeguard the confidential techniques they have developed. They could therefore legally restrain a former employee from using the information while employed by a rival firm. However, note that while an employer is entitled to protect their trade secrets, they cannot prevent an employee from using their own skills and knowledge after they have left the employment, even if those skills were learnt from the employer.

Samson was employed as a computer salesman. Part of Samson’s contract of employment contained the following clause. Is the restraint between Samson and his employer valid? 

As this is a restraint of trade clause, explain what that means, how the courts view them, and what is required for it to be valid. Then apply to the facts.

Restraint of trade clauses are often included in contracts of employment as a way for employers to protect their business interests by restricting an employee’s freedom to undertake certain activities during or after ending their employment. In order for such a clause to be valid, it must be shown that the restraint is legitimate, that is, that the employer has a legitimate interest in imposing the restraint, that it is reasonable in terms of time, and the scope of the restraint is no wider than reasonably necessary to protect that legitimate commercial interest of the employer.

From the facts here, the clause is a non-compete  or non-solicitation clause which is intended to prevent Samson from starting a new job with another employer as a computer salesman, or enticing customers from his former employer. Has the employer got a legitimate interest to protect here? Where an employee has direct contact with the employer’s customers as part of their work, are they given Samson’s position, could he use those connections to entice customers away if he went to another employer?  Would the courts recognise that here there is a legitimate interest that may be threatened by Samson going to another employer, and therefore his business requires protection?

But is the scope of the restraint reasonable? Whether a restraint is reasonable will depend on three key factors:

1. The duration of the restraint (in this case, 1 year);
2. The geographical area in which it is to have effect (no area specified, so geographical extent unknown); and,
3. The activities that it purports to control (that he not sell computers anywhere).

In this case the restraint is for 1 year, there is no geographical area specified, and the activities it purports to control, that is, to sell computers, is very wide. The restraint clause appears to be unreasonably wide and there seems to be no legitimate basis for having a restraint that wide on a computer salesman. It would seem to be doubtful that a computer salesman would have sufficient contact with customers for there to be a threat of luring those customers away from the current employer to a new employer where the salesman had gone. The clause would be invalid.

We asked you above that if you were to buy a Toyota dealership you would expect that you would not want the seller establishing competition just down the road but, if you bought a milk bar or cafè, for example, the geographic restraint might be just a couple of kilometres if it is in town (or more in the country). What we did not ask you is whether you would you use the same restraint clause in both purchases? Explain why or why not.

In this case you are being asked to give your opinion, that is, can you use the same restraint clause if you were to buy a Toyota dealership as a milk bar?  Remember that in the sale of a business what you are interested in protecting is the goodwill of the business. Think about the two types of business and whether there are a lot more milk bars than Toyota dealerships. Think about the cost of purchasing each business. Think about why the difference is important.

In any type of business situation what is important for the business to be successful is goodwill. Goodwill is an intangible business asset that does not have a fixed value. Among other things, it represents the value of a company’s brand name, its customer relationships and their loyalty, and is classified as an intangible asset on the balance sheet.

The cost of buying a milk bar and the returns for the owner are much less than for a car dealership. This is reflected in the goodwill and the price you would pay for a milk bar when compared with something like a Toyota dealership. To protect your goodwill in a car dealership you would not want the seller to set up in competition down the street from you, or even in the next suburb, as your customer is much more likely to travel a greater distance to get what they want because they are paying so much for a car than anything a milk bar has to sell.

As a result, the restraint clause for a Toyota dealership will always be more onerous to protect the goodwill of the new purchaser?  Whether a restraint is reasonable will depend on the type of business and is evaluated on a case-by-case basis. The question in each case is what is reasonable to protect the parties. Thus, in the case of milk bar versus Toyota dealership:

1. The duration of the restraint (for the car dealership, a much longer restraint clause – why?);
2. The geographical area (much bigger for the car dealership than for a milk bar – again why?); and
3. The type of business (why?).

You could use similar clauses but they would differ in terms of duration, geography and because of the type of business activity.

Chapter 11

Does it make any difference whether a statement is a representation or a term?

If you explain what a representation is and then what a term is, you will see instantly what the difference is and why it is important.

A representation is a statement of fact, made by one party before or at the time of the making the contract, which leads the other party to enter into the contract. They are pre-contractual and do not form part of the contract, and are not intended to be legally binding. Thus, they are not actionable in contract law.

A term, on the other hand, says what the agreement is about and may be about what each party has to do,  how they should do it, how long that should take, what it is that they have agreed to, the price, who will pay (and when, where and how payment will be made) to make the agreement work. The term can be express, and either oral or in writing, or implied but unlike representation, is intended to be legally binding.

So, in summary, there is a clear difference between the two words. The representation is not intended to be legally binding while the term is.

Explain the purpose of the parol evidence rule and how it is applied by the courts.

Note that there are two parts to this question. First, you explain what the purpose of the parol evidence rule is, and then how it is applied by the courts.

In the case of an oral contract, exactly what the parties said must be found as a matter of fact, and to this end the courts will admit as evidence all facts known to the parties, including both actions and words of the parties.

In the case of a written contract, the courts assume that all the terms agreed to by the parties are contained in the contract and a court will generally not admit evidence of acts or words of the parties before the execution of the document if it has the effect of adding to, varying or contradicting the written agreement. This is because the courts assume that the parties’ intention is contained within the ‘four corners’ (the text) of the contract.

This is a rule of evidence that states that additional oral evidence is not considered by the courts to contradict, vary, add to or subtract from its terms when a contract is complete on its face unless it results in hardship or injustice in which case oral evidence can be admitted:

• to prove a trade custom or usage;
• to show that the contract has not yet become effective;
• where the court is of the opinion that the written document contains only part of the agreement;
• to clarify any ambiguous language used in the contract;
• where, due to a mistake of the parties, their agreement was not accurately expressed in the written contract;
• to demonstrate that a description is false; or
• to determine how important the truth of the statement was.

In trying to ascertain the promissory nature of a statement, and whether it is a representation or a term, what matters will the courts take into account in trying to ascertain the intention of the parties? Discuss.

When trying to ascertain the intentions of the parties from the particular facts before it and whether a statement is a representation or term, the court will take into account the following matters:

• How much time has lapsed between the making of the statement and the final agreement? The longer the lapse of time between the making of the statement and the final agreement, the more likely it is to be treated as an inducement and not intended to form part of the agreement. When was the statement made?
• Was the innocent party asked to check or verify the statement? Here the statement is more likely to be an inducement.
• Was the statement made with the intention of preventing the other party from finding any defects, and did it succeed? Just note it is important to look also at the context in which the statement was made. If the statement was made after the sale then it was a representation and unenforceable, as the contract had already been finalised.
• What importance did the parties attach to the statement? Did the parties placed considerable importance on the statement? If a party did not rely on the statement, it would be a representation.
• Did one of the parties have special skills or knowledge? Where one of the parties had some special skill or knowledge not possessed by the other party with regard to the subject matter of the contract, then a statement would more likely be treated as a term.
• The relative knowledge and intention of the parties should be considered. Which of the two parties is in the best position to know or ascertain the truth about the statement?

Problem answer

As you asked the question about white ant immediately before entering into the contract, even though it was not a written term in the contract, and the seller’s assurance immediately before you signed was intended to form part of the agreement between you and the vendor when considered in the totality of the evidence and it was intended by the parties to form a condition subject to which the contract was entered into, that is, a collateral contract and was of sufficient weight to overcome the parol evidence rule.

As an aside: Could you have argued that the vendor had fraudulently misrepresented the true position of the house when stating that it did not have termites since any reasonable inspection would have revealed their presence and the extent of the damage caused by them? Do you think that the seller’s statement was made with the knowledge that it was false or recklessly, without caring whether it was true or false?

You could argue that the vendor had fraudulently misrepresented the true position of the house when stating that it did not have termites since any reasonable inspection would have revealed their presence and the extent of the damage caused by them. It could be argued that the seller’s statement was made with the knowledge that it was made false or recklessly, without caring whether it was true or false but you need more information, for example, how desperately did he need to sell? Would the statement have helped the seller get a better price? Would the property not have sold if he declared it was full of termites?

Once a collateral contract is established, what does the plaintiff need to show for it to be valid and enforceable?

Note that the question is really in two parts. To answer the question you need to begin by explaining what a collateral contract is, and in the second part what you need to show for it to be valid and enforceable.

A statement which is not a term of the contract can sometimes be regarded as a collateral or a preliminary contract if it can be shown that the main contract would not have been entered into in the absence of the earlier statement. ). In such a case the courts may be prepared to enforce the promises made by the parties before they entered into the main contract. The consideration to support the defendant’s promise in the collateral contract is the making of the main contract.

In order to establish a collateral contract regarding a statement of fact it is necessary to show that the person making the statement:

• intended it to be relied on (and not descriptive or representational); and
• it is not supported by past consideration (the promise is agreed before the statement is made); and
• it is consistent with the main contract

Does a collateral contract or promise override an exclusion clause?

Begin by explaining what a collateral contract is and how it works, that is,  what its purpose is and whether the collateral contract can exist side by side (but separately) with the main contract. Then explain what an exclusion clause is and then answer the question.

A collateral contract can be a verbal statement or a separate written statement to the main contract where the parties to one contract enter into another contract. Once established, it exists independently of the main contract.  It is essentially a promise that can be enforced but is not a term of the main contract.

An exclusion and limitation of liability clause, on the other hand, is an attempt by one party to exclude or limit their liability. For the exclusion clause to be effective, it is not necessary that the party receiving the offer has read it, but you must have taken reasonable steps to bring the clause to the other party’s attention and it should be reasonable or fair.

The collateral contract must be consistent with the main contract and it must be promissory. If an inconsistency comes from the operation of an exclusion clause in the main contract, the collateral contract or promise will override the exclusion clause because it is the very thing that induces the injured party to contract.

Problem answer

Another problem question. This is a more difficult question because you are going to have to work out whether the recommendations of the speed of the boat were promissory and capable of being considered to amount to a collateral contract. So explain what a collateral contract is and what needs to be established for it to be a collateral contract here based on the facts in the problem.

Was the recommendation of the speed of the boat capable of being considered promissory and thus a collateral contract? Was the representation in the letter a term of the main contract or a collateral promise? Although the statement as to the speed of the boat led you to entering into the contract, it was not promissory but rather an expression of opinion.

At the time of the letter, negotiations were still in progress and as is noted under ‘Hints’ you had three choices to consider:

1. You could have made the attainment of speed a condition, but you didn’t; or
2. You could have made the boat builders promise that the boat was capable of achieving 23 km/h and not representational to be actionable; or
3. You could have used your own judgement based on what the boat builders said, which you did, and that statement was not promissory.

End result, no collateral contract and no remedy or ‘so sad, to bad’ for you.

Problem answer

In this case an assurance was given about how a particular clause was to operate. By reneging on the promise, the question is whether you actions were unconscionable? Begin by explaining what a collateral contract is, and how it is established. Then apply it to the facts.

Was the collateral promise consistent with the main contract? In this case, as the verbal agreement and the proviso in the written sublease over termination were inconsistent, it was not possible to infer a collateral contract. The courts will allow the collateral contract argument to succeed only if it can be established that the collateral promise is consistent with the main contract.

Explain why it is important to know what type of term/s are contained in a contract?

With this type of question, you need to explain what the three types of terms are and then in a final paragraph you can summarise why they are import, for example, because the remedies under each available to a plaintiff are different.

The type of term in a contract will determine the type of remedy that the party bringing a claim for breach will be entitled to. If it is a condition it is a term that is vital to the contract. The parties consider it so important that its non-performance may be considered by the injured party as amounting to substantial failure to honour the contract at all, and thus may be regarded as grounds for terminating the contract (but note that any obligations still outstanding at the date of termination continue) or suing for damages (or both).

If it is a warranty the parties consider it to be a term of lesser importance to the main purpose of the contract. If it is breached, injured parties must still perform their part of the contract, but they have the right to sue for damages for any loss that they may suffer as a result of the breach+.

The parties rarely indicate whether a term is a condition or a warranty; that is, an essential or a non-essential promise, depends on the intention of the parties. And even if they do, the courts may not be prepared to accept what they say!

It may happen that a term cannot be classified as a condition or a warranty until after a breach of contract has occurred. The courts have identified a further class of terms that lies between conditions and warranties, called intermediate or innominate terms. Here the court focuses on how serious the effects of the breach are on the contract, rather than attempting to classify the term that has been broken as a condition or a warranty. Has the breach deprived the innocent party of substantially the whole benefit that they should have derived from the contract?

How do the courts decide on the importance of a term?

In answering the question you need to begin by explaining what a term is. Then explain its importance to an injured party, that is, in the remedies available to them.

Having decided that the statement is a term, explain there are three different types of terms: is it a condition, warranty or innominate term? Explain each. A court will:

• look at what effect the breach had on the contract—if the breach has had a serious effect, it could be treated as a condition, or if the breach is not serious, it could be treated as a warranty or innominate term, or
• apply an objective test, looking at the case as a whole and considering the importance of the broken stipulation as an inducement to the plaintiff to enter into the contract. Is the stipulation essential or of fundamental importance to the contract? If the answer is ‘yes’, it is a condition. If it still considered to be a term but of lesser importance then it is a warranty or an innominate term. The presumption being the more important the term is to the contract, the more likely the term will be a condition. Subsequently, if a term is less important to the contract, it will more than likely be a warranty.

The reason it is important to find out what type of term it is that you are dealing with is found in the remedy available to the injured party, so comment here on the remedies available to the injured party, that is, for a condition, as it is of fundamental importance to the contract, the injured party can choose to end the contract and has the right to sue for damages. If it is a warranty, then the injured party can claim damages for the specific breach. If it is an innominate term, then the courts will classify the breached term according to the consequences and seriousness of the breach, and decide whether it should be treated as a condition or warranty

What is the difference between a condition precedent and a condition subsequent in a contract? Explain, giving an example of each.

Note here that you are required to do two things. One is to explain the difference between a condition precedent and a condition subsequent, so no need for great detail Second, make sure you give an example of each.

A ‘condition precedent’ and a ‘condition subsequent’ is that in the case of a condition precedent a contract does not exist until the term has been fulfilled or satisfied, for example, in a property purchase you, as a buyer, might want to include a clause such as ‘subject to the ANZ bank agreeing to provide finance’. If you, as the buyer, can’t get the finance, the agreement fails and there is no contract.

A condition subsequent is the opposite of a condition precedent. It is an exit clause that if it occurs will bring a contract to an end, for example, you purchase a car from a car dealer and part of the deal was that if you were not completely satisfied, take the car back within 7 days and get your money back. If you return the car within the 7 day period, that terminates the original contract.

Problem answer

With this problem begin by explaining what a condition and warranty are. Then look at the facts again and decide which should apply, explaining why based on the facts. DO NOT just say, breach of condition and damages but explain what the courts (or you) are looking for and the impact on the agreement between the parties.

Breach of a condition or warranty? Remember that breach of a condition allows repudiation and/or damages while breach of a warranty allows the innocent party to claim for damages only. The court will look at the contract as a whole and consider whether the promise was so important to the promisee that they would not have entered into the contract unless there had been an assurance of a strict or substantial performance of the promise, and this was apparent to the person making the promise at the time.

In this case, it appears that it was of great importance to the producers that the season should start well, and the failure of Poussard to perform on the opening night and in early performances was a serious detriment to them. If the only viable alternative was to employ a substitute, and this could be achieved only by offering permanent employment at a higher rate of pay, then the failure on Poussard’s part to perform on the opening night went to the root of the contract as it could only be interpreted as a condition and breach permitted the producers to fire her.

Problem answer

Note the fact situation here. You might think it is a repeat of the last question, but they are not identical. So, you have to read carefully. The key to this question is in the ‘Hint’. So again, start with an explanation of condition and warranty and then apply to the facts.

Again, is there a breach of a condition or warranty given the above facts? Remember that breach of a condition allows repudiation and/or damages while breach of a warranty allows the innocent party to claim for damages only. The court will look at the contract as a whole and consider whether the promise was so important to the promisee that they would not have entered into the contract unless there had been an assurance of a strict or substantial performance of the promise, and this was apparent to the person making the promise at the time.

Bettini was an experienced operate singer and while late attendance to rehearsals because he had been ill did not mean that he could not be there on opening night. The attendance at rehearsals was subsidiary to the main purpose of the contract and could be treated as a warranty as his illness would not prevent him from performing the rest of his contract. Thus, while Gye might claim compensation for any loss he had incurred, he could not repudiate the agreement.

Problem answer

Here is a question that you have to read carefully.  In fact, read it at least twice. The area of law you are considering appears to clearly stand out. It is about the operation of an exclusion clause, so begin by explaining what an exclusion is and what it does. Look closely at the facts and you will notice there is nothing about a document being given to you, or that you had to sign anything.  As an aside, and just for your information, the question also raises an interesting on an area of law called bailments in case you actually do run into this sort of problem where you might leave goods with someone for repair and then they damage them or don’t do the repairs properly but still want their money.

The first issue relates to the question of an unsigned docket containing an exclusion clause as evidence of dropping of the laptop. The second relates issues to evidence of dropping off the laptop but signing the docket containing an exclusion clause and whether signing it makes any difference to liability.

Dealing first with the unsigned docket. Where the document is unsigned, the question is whether the ‘customer’ knew of and consented to the exclusion clause. If they did not, would a reasonable person have regarded the document as one that would contain contractual terms and not represent a mere receipt or acknowledgment? What would be reasonably understood as being the purpose of the docket Did the computer shop make you aware the docket may contain conditions? The docket handed to you would probably not be construed as a contractual document but rather an acknowledgement that the shop now had possession of your computer and the docket was evidence of this. When you came to collect your laptop, it was evidence that the shop had your laptop and you were the owner, and not a document containing an exclusion clause exempting the shop from liability for negligence.

This is in fact a bailment case, where the bailee (the computer shop) is relying on an exemption clause printed on the shops dockets to avoid liability, and the court is saying that the bailee must take reasonable steps to bring any conditions that limit the computer shop’s liability to you as the bailors   (customer’s) notice.

Now turning to the signed docket. A party signing a document knowing that it contains contractual terms is generally bound by those terms, whether they have read the document it or not. But a person who signs a document containing an exclusion clause may not be bound if they have reasonable grounds for believing that the document was not contractual. In this case, as the exclusion clause on the docket was not drawn to your attention when you signed the docket, if such terms are to be effective then you must be given reasonable notice of what the docket was for and that it contained an exclusion clause if it is to be enforced.

However, just be aware that where there is no disparity in knowledge or bargaining power, no misrepresentation, fraud or duress, a signature is a very strong indication of intention to be bound.

Problem answer

When you look at this type of situation you have to begin by working out what the legal issue is. In this case, the question is asking you to consider whether the exclusion or limitation clause is effective. Again, begin by explaining what an exclusion or limitation clause is and then how it operates. Then you can answer the question.

Where the document is neither a receipt nor an acknowledgment—for example, tickets for a sea cruise—did the passenger have constructive notice of onerous clauses in the document? Has the shipping company given passengers sufficient notice of the terms in the contract? This is a question of fact in each case. In this case the shipping company could not rely on the limitation clause contained in the ticket because it had not been sufficiently brought to the respondent’s attention before the payment of the fare. Therefore, the clause did not form part of the contract.

As an aside, if you were a passenger you would be unable to recover your fare because there was not a total failure of consideration. You had received some benefit under the contract; that is, eight days of cruising. However, you would be entitled to damages for disappointment and distress because the object of the contract was to provide an enjoyable experience.

Problem answer

Another question on exclusion clauses and very important to read the facts carefully. Here you are being asked to comment on two issues, that is, you are a first-time visitor and then you are a regular passenger. 

On the question of a first-time visitor trying to use the ferry, the crucial test is whether reasonable notice of the term has been given so that even a first-time visitor could not argue they were not aware of the entrance requirements on to and off the wharf. In this case, we are told it is above the turnstiles but what we are not told is how easy it is to see and read. These two issues go to the question of the reasonableness of the notice. But would a reasonable person, even a first-time visitor, expect to find express terms and conditions of travel on a commercial ferry? The answer is probably yes because it is 2024 and people today expect to find that the use of all forms of transport are subject to terms and conditions of travel.

Could knowledge of the terms and conditions be presumed where a person has travelled on the ferry numerous times? If you have travelled on the ferry numerous times, you should be aware of the conditions of travel and be bound by them as it could be assumed that you would have had reasonable notice of them.

Problem answer

Again, another exclusion clause question. As with the last two questions, begin by explaining what an exclusion clause is and what its purpose is, that is, what does it cover? In this case you also want to explain how the courts view such clauses. With that done, then you can look at the question again and apply the law to the facts.

When it comes to interpretation of exclusion clauses and assuming that they have been properly incorporated into a contract, the courts strictly construe them against the party who attempts to rely on the clause or term. This is known as the contra proferentem rule and the effect is that the court will ‘read down’ the clause unless it specifies the type of liability to be covered and any ambiguity will be resolved in favour of the injured party,

To be effective here, the clause must operate to protect Warwick & Co in both contract and tort but if you read the exclusion clause again you will see it applied only to protect Warwick & Co from its liability in contract, and not from their common law duty of care in negligence. Any ambiguities will be strictly construed against Warwick & Co. The clause only operates to protect Warwick & Co from breach of contract but not negligence.

If the clause had read: ‘Nothing in this agreement shall render the owners liable for any personal injury to the riders in negligence or contract of the machines hired’, that would have protected Warwick & Co?

It is interesting to note that clauses can be too specific. For example, ‘Where the passenger occupies a motor-coach seat fitted with a safety belt, neither the operators nor their agents or cooperating organisations will be liable for any injury, illness or death or for any damages or claims whatsoever arising from any accident or incident, if the safety belt is not being worn at the time of such accident or incident.’ Do you see a problem? Would the clause protect the bus company if you stood to get your bag from an overhead locker, the bus suddenly braked heavily, and you were thrown to the floor and broke your leg. This was an Australian High Court case called Insight Vacations Pty Ltd v Young [2011] HCA 16 and here the court gave the words their ordinary meaning. The result was that the exclusion clause could operate only when passengers were seated. In this case Insight would probably have been better protected by removing any reference to ‘seat’!

Problem answer

Don’t worry about the fact this is a bailment case. Just remember it for future reference. Again, this is a case on exclusion clauses. In this case, note what the ‘Hint’ is asking you to do, so begin with an explanation of what an exclusion clause, what it is meant to do and how the courts construe them. 

In this case you have an example of interpretation according to the express agreement. The effectiveness of an exclusion clause is purely a question of construction of the contract as a whole in each case. Is the term or clause wide enough to exclude an action for the alleged breach? In this case, the actions of the car park attendant in releasing the car to the thief were outside the terms of the contract you had with the Car Park. It was not merely a negligent act but a delivery not authorised or permitted under the contract.

Explain the operation of the contra proferentem rule. Is such a rule defensible today?

Note there are two parts to this question. First, it is asking you about the operation of the contra proferentem, so explain what the contra proferentem is, then how it operates, and finally whether there is still a need for it today.

Contra proferentem is a principle of strict construction against a party relying on clause or term, for example, to avoid liability such as an exclusion clause. Where the exclusion clause has been correctly incorporated into the contract it will be strictly construed against the party who attempts to rely on it.  The courts will ‘read down’ such a clause unless it specifies the type of liability to be covered and any ambiguity will be resolved in favour of the injured party.

In the case of commercial contracts, there is a greater equality of bargaining positions that can exist between the parties because of access to lawyers. However, the same is not necessarily true where consumer contracts are concerned as they are generally the weaker party in commercial transactions. There is generally no equality of bargaining position between suppliers and consumers with the result that consumers, particularly where standard contracts are used, have to accept terms and conditions that can produce a harsh and/or unfair result for the consumer in the event of a breach.

The contra proferentem rule provides that where a contract contains an ambiguous term (or clause), the terms should be interpreted against the person who drafted the contract (or the party who wanted it included in the contract) and to that end it introduces a degree of equality between the stronger party and the weaker party (the consumer). Because standard form contract documents often lack a genuine bargaining between the parties resulting in inequitable positions, the contra proferentem rule helps to mitigate unfairness by applying the interpretation that gives benefit of doubt to the party upon whom the contract was forced, that is,  the consumer.

In order for a party to rely on an exclusion clause, what must they show?

Again, it is useful to explain what an exclusion clause and what its purpose is, then go on and explain what the person who wants to rely on such a clause must do. Just remember, that unless the exclusion or limitation clause is incorporated into the relevant contract, it will be unenforceable. And even where it is, does the clause cover the liability in question?

Signed documents

A person who signs a contract containing an exclusion clause will be bound by it as an express term of the contract, even if they have not read it, unless fraud, misrepresentation, or a statutory defence can be established.

Unsigned documents

For exclusion clauses to be effective in an unsigned contract, the following points should be noted:

• That the ‘customer’ knew of and consented to the clause? If they did not, would a reasonable person have expected to find such a clause in that type of document?
• That reasonable steps were taken to give sufficient notice of the term?
• If the terms have not been brought to the notice of the ‘customer’, can they be implied by trade usage or custom trade?

In the case of a signed contract, can the party signing limit their liability in both contract and tort?

Yes. See problem question You hired a bike from John Warwick & Co (and answer above) where Warwick & Co could have been protected if their clause had read: ‘Nothing in this agreement shall render the owners liable for any personal injury to the riders in negligence or contract of the machines hired’. This wording makes it clear to the other party that Warwick & Co are not accepting any responsibility for any customer hiring a bike who gets injured because the bike has not, for example, been properly serviced Remember that there is an overlap between negligence (and duty of care owed to a bike user that the bike is roadworthy) and contract (and an implied duty of care that the bike is roadworthy).

Chapter 12

If the creditor has not expressly indicated that payment must be by post – for example, if the account reads ‘Payment within 7 days’ rather than ‘Payment within 7 days by post’ – loss of the letter and its contents is borne by the debtor, irrespective of what past practice has been unless payment is in another city or a great distance away. Explain why

Note what the question is asking you to do and that the focus is on the creditor.

Payment by post can occur by way of request by the creditor or on the initiative of the debtor, but note that the consequences will differ depending on which way it occurs.

If the creditor requires payment to be made by post, the normal rules of contracts by post apply. When the letter is lodged at the post office, this is considered as a discharge from liability for the debtor if the letter is lost in transit as the post office is the agent of the creditor. The debt itself is discharged when the claim connected with it is made on the debtor’s bankers.

If the creditor has not expressly indicated that payment must be by post—for example, if the account reads ‘Payment within 7 days’ rather than ‘Payment within 7 days by post’—loss of the letter and its contents is borne by the debtor, irrespective of what past practice has been, unless payment is in another city or a great distance away.

Where there has been partial performance of a contract, does payment still automatically follow for the party in breach? Explain why.

Again, note what the question is asking you to do, that is, comment on whether the party in breach can still request payment where there has been partial performance, and explain why.

Where there has only been a partial performance, payment does not automatically follow unless the contract is divisible, that is,  it can be divided up into its component parts (which is a question of construction), or there has been free and willing acceptance of partial performance by the party receiving the benefit, or substantial performance has taken place, or the actions by the non-performing party prevent performance.

If the breach is minor, so that the cost of rectification is small when compared with the contract price, the doctrine of substantial performance may still permit the defaulting party to obtain the contract price. Each case turns on the construction of the contract. Whether or not there is a substantial performance is essentially a question of fact. This can be assessed by taking into account both the nature of the defects and the proportion between the cost of rectification and the contract price, the benefit obtained by the owner, whether the work is entirely different from that contracted for, or whether the contractor has abandoned the work.

If one party is prevented from performing, the other party may regard the contract as being at an end and the party being prevented from performing will be released from any further obligations and can:

• terminate the contract;
• claim for damages for breach of contract;
• terminate the contract and claim for damages; or
• if performance had commenced but had not been completed, claim on a quantum meruit.

The seller agreed to supply 4500 tonnes of wheat to the buyer. The contract allowed a variation of 2% on weight and a further 8% on contract quantity. The seller delivered 25kg  more than the maximum allowed under the contract but never claimed payment for the surplus. Can the buyer reject the whole cargo solely on the ground that the quantity tendered was 25kg  over the contract quantity? Explain.

A short problem question but this time with no hints. So look carefully at the facts and consider whether the buyer is in breach of contract, then explain why you think they are (or aren’t) in breach. Has there been a substantial departure from what was agreed in the contract?

 Where there is a variation from the terms of the contract, the parties will be discharged from any obligations provided that the performance of the contract corresponds as closely as practicable with the terms of the contract. The strict rule of complete and precise performance applies only if the contract is entire— that is, it cannot be divided up. Contracts for sale of goods are usually treated as requiring entire performance. If variation is only minimal or trivial, the courts will generally not worry about it. But each case will have to be determined on its facts, and in each case the question to ask is whether there has been a substantial departure from the contract.

Hoenig was employed to redecorate and furnish Laura’s flat for K1500, to be paid as follows: ‘Terms of payment are net cash, in three instalments of K300 as the work proceeded; and balance of K600 on completion’. Laura paid K600 to Hoenig. The work was done poorly, and the cost of rectification was K350. Hoenig was not happy. Can he recover the balance of K900 from Laura?

Here you need to consider what sort of contract there is between the parties. Is it divisible or entire? So, begin by explaining the difference divisible or entire contracts and then look carefully at the facts here.

This is an example of a divisible contract because it is divided up into three parts. If the breach is minor, so that the cost of rectification is small when compared with the contract price, the doctrine of substantial performance may still permit the defaulting party to obtain the contract price. Hoenig was entitled to recover the contract amount less the cost of rectification, because the contract had been substantially performed and the defects were easily rectifiable.

Each case turns on the construction of the contract. Whether or not there is a substantial performance is essentially a question of fact. This can be assessed by taking into account both the nature of the defects and the proportion between the cost of rectification and the contract price, the benefit obtained by the owner, whether the work is entirely different from that contracted for, or whether the contractor has abandoned the work.

An English firm agreed to sell and deliver machinery to a Polish company, which paid £1000 (nearly K5000) in advance. The English firm commenced work on the machine, but because of the outbreak of war and the German occupation of Poland, the contract was frustrated. The question of frustration was not in issue; the Polish company claimed the right to recover the deposit it had paid before the frustrating event. The English firm claimed that it had done a considerable amount of work on the machine. What is the effect of frustration in this case?

Another problem question. From the facts, you are told what the problem is: frustration. Begin by explaining what frustration is and then look again at the facts and decide whether there has been a total failure of consideration. 

Like the last question, this is also a question on the application of the doctrine of frustration. The effect of a frustrating event is to discharge a contract immediately, but only as to the future. The contract is not void ab initio (or void from the beginning) but void only from the time of the frustrating event.

For the period that the contract is valid, any obligations that arise must be fulfilled. Money paid under the terms of the contract before the frustrating event occurs (for example, a deposit) cannot be recovered, because at the time the money was paid the contract was valid. You would need to establish a total failure of consideration to be able to recover the money.

Is there a total failure of consideration here? Did Fibrosa get anything for the money it had paid? As the machinery had not been delivered because of the outbreak of war, there was a total failure of consideration and as a result Fibrosa is entitled to get its deposit back. The expression ‘total failure of consideration’ should not be seen as meaning that there is no consideration. In this situation, it means that Fibrosa has got nothing under the contract. As they had already paid K10,000, that money can be recovered. But the principle only applies if Fibrosa has got nothing under the contract, If Fibrosa had received part of the machinery before the contract was frustrated, the K10,000 would not be able to be recovered because there would not have been a total failure of consideration.

Imagine you wanted to hold a concert and an express term as to the purpose for which the hall you wanted to use was that it was in a fit state for a concert. Unknown to the parties the hall burnt down without their knowledge while they were still negotiating. A contract was subsequently entered into and both parties at the time of entering into a contract believed that the hall still existed. Has the contract been frustrated? Explain why or why not.

 Another problem question. From the facts, you are told what the problem is; has the contract been frustrated? So again, begin with explaining what frustration is and then look again at the facts and decide whether there has been a total failure of consideration. 

This is a question on the application of the doctrine of frustration and the effect of impossibility owing to the non-occurrence of an event basic to the contract. If the entire basis of a contract is the happening of some event that doesn’t occur, the contract may be discharged as it is no longer possible to achieve the substantial purpose of the contract.

While the contract doesn’t contain any express reference to what the hall is to be used for, the only inference that could be drawn from the surrounding circumstances was that both parties to the contract assumed that the hall could be used for a concert and that this was the basis of the contract. When the basis or underlying object for which the parties entered into the contract ceases to exist, the contract is dissolved.

Why do the courts refuse to enforce penalty clauses in contracts?

Begin by explaining what a penalty clause is, then you can explain why the courts don’t enforce them.

A penalty clause included in a contract is a threat to ensure performance, and is imposed on the weaker party by the stronger party. If the sum is clearly extravagant and totally out of proportion to the amount of loss suffered by the injured party, then it is probably a penalty and so not enforceable. Only the actual loss sustained can be recovered.

The courts are often faced with the problem of deciding whether a sum is a penalty or liquidated damages. They don’t attach great importance to what the parties may like to call ‘the sum’ in the contract. The question in each case is whether the sum can be seen as a genuine pre-estimate of the damages that will result from a breach or a sum intended to punish the other party in the event of a breach. This is a question of construction to be determined by the circumstances and on the terms of the particular contract at the time of its making (not at breach) and the reason that the courts don’t enforce penalty clauses is that they are often unconscionable or unfair under common law or contrary to statutory provisions of ‘unconscionable conduct’ and ‘unjust’ or ‘unfair’.

Remember that as a general rule, penalty clauses are imposed on the weaker party by the stronger party.

Explain the difference between liquidated and unliquidated damages and a penalty.

Start by explaining what liquidated and unliquidated damages and a penalty are, then what is the difference between them.

Liquidated damages are a fixed amount in the contract. The parties agree to what should be sum-based paid in the event of a breach, and the clause is known as an ‘agreed damages clause’. It must be a genuine or bona fide pre-estimate of actual loss that will flow from the breach.

Unliquidated damages are awarded when a plaintiff is unable to assess precisely what should be the amount of recoverable damages be — for example, for pain and suffering or disappointment. In most cases, no amount is mentioned in the contract and it is left to the court or the jury to determine what amount should be awarded.

A penalty is an amount agreed on as a security to ensure that a contract will be performed. It is a threat to ensure performance, and is imposed on the weaker party by the stronger party.

Explain why an injured party to a contract should have to mitigate their loss.

Begin by explaining what mitigation of damages means and from there explain why an injured party has to minimise their loss.

The law imposes a duty on the person claiming damages (the injured party) to take all reasonable steps to reduce or minimise (mitigate) their loss. The innocent party, that is, the party not in breach, cannot take advantage of the defendant’s breach as that would expose the breaching party to unfair liability.

If persons claiming damages fail to take this step, the amount of damages they can expect to recover will be reduced. If the plaintiff is able to avoid a loss, damages will not be recoverable for the potential loss that the plaintiff may have suffered.

Joad Tyres sold car covers and other motor accessories to Casey under a contract which provided that Casey would not sell any of the items below certain listed prices. In the event of breach of the agreement, Casey agreed to pay K50 in liquidated damages for every item it sold below the listed price. Casey subsequently sold a tyre below the listed price and was sued by Joad Tyres. Would you classify the sum as a penalty or liquidated damages? Explain why.

 Another problem question. Begin by identifying the problem, which you are told is breach, and explain what that means, then what are liquidated damages and a penalty. You can then classify the sum.

 In effect, this is an amount agreed on as a security to ensure that a contract will be performed. It is a threat to ensure performance, and is imposed on the weaker party by the stronger party. If the sum is clearly extravagant and totally out of proportion to the amount of loss suffered by the injured party, then it is probably a penalty and so not enforceable. Only the actual loss sustained can be recovered.

The courts are often faced with the problem of deciding whether a sum is a penalty or liquidated damages. They don’t attach great importance to what the parties may like to call ‘the sum’ in the contract. The question in each case is whether the sum can be seen as a genuine pre-estimate of the damages that will result from a breach or a sum intended to punish the other party in the event of a breach. This is a question of construction to be determined by the circumstances and on the terms of the particular contract at the time of its making (not at the time of breach).

In this case the amount of K50 is probably a genuine pre-estimate of loss flowing from the breach and not ‘extravagant and unconscionable’. The onus is on Casey to show that the late fees were penalties. The test in this type of case was whether the K50 per item was ‘out of all proportion’ to the interests of Joad Tyres, the party it was protecting. What we don’t know here is the value of the car covers and other motor accessories which would then have provided us with a guide as to whether K50 was a penalty but on the information given it probably was a genuine pre-estimate.

You arranged a 2 week holiday in Switzerland through a brochure from Swans Tours. The brochure claimed the accommodation was close to the ski fields, its owner spoke English, and there would be a welcome party on arrival and a farewell party on departure at the bar. However, few of the statements proved to be correct and the trip turned into a disaster. What would you do?

 I would assume that you would give serious thought to suing for breach of contract. But your problem would be whether you could claim damages. So the first thing you are going to need to do is to explain whether the courts will grant damages for a spoilt holiday, and if so what sort of damages would your claim be based on. Does it matter that it would be hard to assess the amount of damages?

 While the courts will generally not grant damages for anything other than provable or economic losses, in certain instances, the courts will allow a claim for damages by an injured party for breach of an express or implied term that the promisor would provide them with pleasure, enjoyment or personal protection, and the failure to do so has caused physical injury or inconvenience to the plaintiff. The damage claimed must be a direct result of the breach, and remoteness is not an issue.

On the issue of the recovery of damages for the disaster called a holiday, as few of the statements in the brochure proved to be correct, the object of the contract, which was relaxation and enjoyment as promised holiday in the brochure, did not live up to expectations, you should be entitled to damages for disappointment and distress.

The fact that it is difficult to determine the amount of damages is not a ground for disallowing a claim. Where this is difficult, or where the loss is of a speculative nature, the court will determine the amount of damages based on you being able to show on the balance of probabilities that the loss of chance was of some value.

The defendant leased a racehorse to you for 3 years. After 6 months, the defendant took the horse back. As part of the damages claim for breach of contract, you sued for loss of potential prize money and profits that you would have made from betting on the horse. Do you think you would succeed in your claim? Why?

Again, a problem question, and the question tells you the area, that is, damages. So begin by explaining what are damages and how they are generally assessed. Here, the claim is of a speculative nature and what you are going to have to address here is whether the courts can determine the amount of damages, or even hear the matter.

The question here is where it is difficult to assess the amount of damages, should your claim be dismissed? Where it is difficult, or where the loss is of a speculative nature, the court will determine the amount of damages based on the plaintiff being able to show on the balance of probabilities that the loss of chance was of some value. You will be entitled to recover damages for potential loss of prize money and profits you could have made as you have suffered a loss. The courts will exam all the material in order to arrive at what they believe is a reasonable approximation of the loss suffered by you.

Explain under what circumstances a quantum meruit claim would arise.

Begin by explaining what quantum meruit means, noting that it is a claim in equity, and then you can go on and explain when such a claim would arise.

Quantum meruit means ‘as much as the person has earned’ and is a claim in equity. It is essentially an action for payment of the reasonable value of good supplied or services performed. The contract may be discharged by breach, but where the contract is for goods or services there is a new implied contract imposed by law on the party taking the benefit that they will pay a reasonable amount for the quantum or portion given. It is not available to the party in breach.

Quantum meruit most often arises where there has been a contract but it has been frustrated, made void, terminated or is otherwise unenforceable but it can also arise:

• where a defendant has prevented a plaintiff from carrying out the remainder of their contractual duties;
• where the parties cannot agree on payment;
• where the innocent party to the contract is faced with a repudiation by the other party and decides to terminate the contract in response; and
• where the parties agree on payment for the part-performance but not the actual amount.

Henrietta engaged a firm of solicitors to obtain an injunction to prevent a former friend from visiting her and making a nuisance of himself. An unqualified litigation clerk was given the matter to handle, but his incompetence created further embarrassment for Henrietta. Does Henrietta have any claim against the firm for ‘mental distress and upset’?

A problem question. This is an interesting question because it raises two issues. It takes you back to what you looked at in Chapter 2 and the issue of, in this case, vicarious liability, that is, are the actions of the litigation clerk linked to their employment and thus capable of making the employer liable. But it also raises an issue of contract that you should deal with, that is, the engaging of the firm by Henrietta creates a contract. Hands up those who picked up the two possible actions? The second issue then is the one of damages and whether they are claimable for mental distress and upset.

There are two questions to consider here. First, is the firm liable for the actions of litigation clerk? Secondly, are damages recoverable for mental distress?

Liability of the firm for the actions of their litigation clerk in failing to carry out their duties raises the issue of vicarious liability which is a tort. The clerk was acting in the course of their employment and so the firm can be held responsible for their clerk’s actions in negligently handling Henrietta’s matter. The elements of duty, breach and damage would all appear to be satisfied. But in addition to the potential tort action there is also a breach of contract action available to Henrietta. There is an implied term in the contract with the firm that they will carry out their duties in a professional manner which they have failed to do by failing to ensure that the clerk was handling Henrietta’s matter competently. A breach of contract.

In addition to expectation and reliance losses, damages may be recovered for losses that arise from mental distress as long as she can establish that she has suffered damage caused by the breach of contract and it falls within the relevant principles of remoteness of damage. Damages for disappointment and distress are not recoverable unless they proceed from physical inconvenience caused by the breach. What is certain is that damages for disappointment and distress arising from breach of contract will be recoverable where the object of the contract is to provide peace of mind or freedom from distress. In such cases the damage can be said to flow directly or arise naturally from the breach as there is a failure to provide promised benefits.

Josef, a well-known film actor, entered into a contract with Frère Bros for a period of five years, where he agreed to give his services exclusively to them and not act in films for any other company during this period. During the first year of the agreement, Josef entered into a contract to star in a film being made by Pretty Pictures. Do Frère Bros have any remedy? Explain why.

Another problem question. This is one of those questions you have to read very carefully. Is the contract Josef has with Frere Bros exclusive, that is, Josef cannot work for anyone else for 5 years valid? Note the use of the word ‘exclusive’, so you need to explain what that means in the context of Josef’s contract. Is there a breach of contract by Josef and if there is, what remedies do Frere have? The best option here for Frere would be an equitable remedy – an injunction, so explain what an injunction is and why it would be better than specific performance in your answer. 

Frere Bros could seek an equitable remedy in the form of an interlocutory injunction to stop Josef working for Pretty Pictures. As the matter here involves personal services, specific performance is not available because of problems in enforcing the contract by the court but such a problem doesn’t exist with an injunction.

An interlocutory injunction is the best option as it can be used to restrain Josef from breaking his contract but note it will not be awarded if damages are an adequate remedy, which in this case is probably not an issue as it appears from the facts that Frere Bros are keener to keep his services (he signed a 5 year deal with the move company).

Initially the company should seek an interlocutory injunction as this preserves the subject matter of the dispute, that is, the contract with Frere Bros, and the status quo between the parties is maintained until the dispute can be heard by the court—it does not decide the rights of the parties and is generally only obtained in the case of urgency. By granting an injunction against Josef preventing him from acting anywhere else during the term of his current contract Josef is not being forced to work for Frere by the court’s granting of an injunction. Josef could choose to work in some other profession than acting that had nothing whatsoever to do with the business of the employer.

Chapter 13

Problem answer

A problem question. Just note that with this problem there are three questions for you to consider.

The first is the question of whether painting a portrait was a contract for the sale of goods. The second question then follows on from the first and that is if it is not a contract for the sale of goods, is it a contract and there are no rights. Don’t forget to consider the final question. Does the death of one of the parties make any difference to your answer? This raises the question of whether the contract was one of personal services.

In this case what is the main purpose of the agreement? Is it to transfer ownership of goods? If it is, it is a contract for the sale of goods. But if the main part of the agreement is the skill and experience to be displayed by one of the parties in performance of the contract, such as the painting of a portrait, and the transfer of title to the materials is of secondary importance, it is a contract for work and labour and the supply of materials.

Even if it is not a contract for the sale of goods, all that means is that doesn’t attract the attention of the Goods Act. The verbal agreement to paint a portrait is still a contract but as it is for services, it does attract the attention of the Goods Act.

The effect of the death of one of the partiers on the contract will depend on whether the agreement is one for personal services or not. If it is for personal services and both parties are required to personally perform obligations if the contract is to be fulfilled, then the death of either party will bring the contract to an end.

What is the meaning of the following terms, giving an example in each case:

1. specific goods

2. future goods

3. unascertained goods.

With short answer questions, you should aim at answering them in a couple of lines. Note that in addition to explain the meaning of the word, you have to give an example.

1. Specific goods are goods identified and agreed on at the time of the contract of sale, for example, a year 2024 white Ford Ranger.
2. Future goods are goods to be manufactured or acquired by the seller after the making of the contract for sale, for example, a sale by a dealer of a new 2024 Ford Ranger that is yet to be made.
3. Unascertained goods are goods that are defined by description only. They are not identified and agreed on when the contract is made, for example, a bag of Sugar from the lot of one thousand bags.

Into which classification would the following goods be placed?

1. 10 kilograms (kg) of sugar out of a 100-kilogram bag of sugar

2. an LCD flat-screen TV on display in a shop

3. a second-hand blue Toyota Camry car.

Another short answer question. Unlike the last question, you are not asked to do any more than say into which classification the following fall.

1. 10 kilograms of sugar out of a 100 kilogram bag of sugar – unascertained;
2. an LCD flat-screen TV on display in a shop – ascertained
3. a second-hand blue Toyota Camry car – specific.

Explain the purpose of a Romalpa clause in a sale of goods contract. What impact, if any, has the Personal Property Securities Act 2011 had on Romalpa clauses?

You need to do three things to answer this question well. First, begin with an explanation of what a Romalpa Clause is. Second, explain its purpose. Finally, explain what the Personal Property Securities Act is and its impact on Romalpa clauses, if any.             

A Romalpa clause in a contract is a retention of title clause. Its purpose in a contract for the sale of goods is to protect the seller of goods by ensuring that the title to the goods remains vested in the seller until the buyer complies with certain obligations (usually payment of the purchase price).

The Personal Property Securities Act 2011 covers security interests over personal property other than land. A security interest is an interest in personal property that in substance secures payment of a debt or other obligation. In addition to covering standard forms of security such as chattel mortgages, the definition also covers retention of title clauses in contracts under which a purchaser has possession of property but does not acquire title from the vendor until the full purchase price is paid.

If the buyer defaults, or goes into receivership or liquidation, the seller may lose the goods if they haven’t used a ‘reservation of title’ or ‘Romalpa’ clause to reserve title or legal ownership over the goods and registered their interest in the goods with the Personal Property Securities Registry. If the buyer defaults, the seller may be able to get the goods back from an innocent third party.

Problem answer

Another problem question. In this question you have to decide what area of the Goods Act might apply. Look again at the facts and what you are looking for is when did the property (ownership) in the kidneys pass from the seller to the buyer? Remember that risk passes from the seller to the buyer when property or ownership pass from the seller to the buyer.

The question here is whether the kidneys are ascertained or unascertained goods.  If the goods are ascertained, property and risk will have passed to the buyer. On the other hand, if the goods are unascertained property and risk will have remained with the seller.

As the buyer’s goods had been identified as they were sitting on the pavement awaiting collection by the buyer’s carrier, property and risk had passed to Wardar they would have to bear the loss under s 18(3)(a)). of the Goods Act.

The seller agreed to supply 4950 tonnes of wheat to the buyer. On delivery, the buyer discovered that it had received only 4895 tonnes, a shortfall of 55 tonnes, and so refused to accept delivery. Can the buyer reject the whole delivery? Advise the buyer.

Another problem question. Remember that the general rule when dealing with quantities of goods under the Goods Act is that the seller should deliver the exact quantity of goods ordered by the buyer. Has that happened here? Or is there an exception to this rule?

It is the duty of the seller to deliver the exact quantity of goods ordered by the buyer. However, a trifling difference doesn’t give the buyer the right to reject the goods, although this is subject to trade usage, special agreement, and the course of dealing between the parties (s 30 of the Goods Act).

Remember in the last Chapter relating to discharge and breach it was noted that the strict rule of complete and precise performance applies only if the contract is entire— that is, it cannot be divided up. Contracts for sale of goods are usually treated as requiring entire performance. But if variation is only minimal or trivial, the courts will generally not worry about it. However, each case has to be determined on its facts, and in each case the question to ask is whether there has been a substantial departure from the contract. In this case, the sellers have substantially performed the contract.

Coca-Cola purchased 200,000 yo-yos, to be delivered in instalments. They were to be used in conjunction with an advertising program by Coca-Cola. Of the first 85,000 yo-yos delivered, 65,000 were returned as defective. Coca-Cola wants to terminate the contract. What percentage of yo-yos do you think Coca-Cola should have to accept delivery of?

Another problem question. Unlike the last question where the variation was trivial, in this case the question relates to  rules of delivery in a contract of sale of goods and acceptance where 85 % of the yoyos were defective. Should Coca-Cola be able to terminate the contract or by taking delivery have Coca-Cola accepted the yoyos?      

Under the Goods Act, the buyer by taking delivery of the yoyos has the right to inspect the goods for defects. Section 34(1) of the Goods Act provides for a buyer’s right to examine the goods where goods are delivered to the buyer and he has not previously examined them, he shall not be deemed to have accepted them until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract.
In this case, given the percentage of yoyos that were defective was 85 %, Coca-Cola would be able to rely on s 34(1) as what was delivered was not in conformity with the contract.

Who is an unpaid seller? Briefly explain.

Note the question asks you to ‘briefly’ explain who is an unpaid seller.

An unpaid seller includes any person who is in the position of the seller, such as an agent for the seller, and who:

• has not been paid the full price or has been paid with a bill of exchange or cheque as conditional payment, but which cheque or bill of exchange has been dishonoured.

Where an unpaid seller exercises a lien over goods, what is the seller doing?

Explain what a lien is, and then explain what the seller is doing.

A ‘lien’ is a legal right of a seller to hold or retain possession of goods for performance of an obligation by a buyer, which in this case is for payment of goods.

Discuss whether the unpaid seller has a right of resale of goods under a contract for the sale of goods. What rights do you have as a buyer under the Goods Act if the goods you purchase are faulty?

In this question there are two parts. The first relates to the rights of an unpaid seller while the second part what rights you have if the goods are faulty.

The unpaid seller’s rights depend on whether or not the property or possession of the goods, or both, have passed to the buyer:

• Damages for non-acceptance;
• Where property and possession have passed to the buyer, the unpaid seller has rights only against the buyer personally.
• Where the unpaid seller has possession of the goods or they are still in transit to the buyer, the seller may:
  • exercise a lien on the goods for the price—that is, the right to retain possession until the price is paid;
• in the case of insolvency, exercise the right of stopping the goods in transit, notwithstanding that the goods are no longer in the possession of the seller; and
• have a right of resale.
• Where property in the goods has not passed to the buyer, the unpaid seller has, in addition to the other remedies, the right to withhold or stop delivery of the goods.
• Where the seller has property and possession, the goods may be resold without the seller committing a breach of contract.

Assuming the faulty goods cost more than K20 (s 6 of the Goods Act), the buyer may be able to rely on s 15(2)(b) of the Goods Act  that where goods are bought by description from a seller who deals in goods of that description, there is an implied condition that the goods are of merchantable quality. Depending on what the faulty goods are, s 15(2)(c) may also be able to be relied on as there is an implied warranty or condition as to quality or fitness for a particular purpose that may be annexed by the usage of trade. Breach of a condition is treated under s 12(4)((4) can only be treated as a breach of warranty. Remedies available to a buyer for breach of warranty are damages (s 53).

Chapter 14

A racehorse was consigned by rail for Swaffield at one of the plaintiff’s railway stations. Swaffield was not at the station when the horse arrived, as it arrived late at night. The railway company didn’t have his address, so there was no way it could get in touch with him to tell him the horse had arrived. As the horse couldn’t be kept at the station, it was sent to a stable at the company’s expense. When the railway company sought to recover the expenses for the upkeep of the horse, Swaffield refused to pay. Do you think the railway company will succeed in their claim?

A problem question and the area of law is agency. How do you know this is an agency question? The railway company is transporting Swaffield’s horse for him. Begin by explaining what an agency relationship is, then apply each of the conditions to the facts in the problem and come to a conclusion. 

This is a case of agency involving a case of necessity or emergency four conditions must be satisfied:

1. there must be a genuine emergency where the principal’s property is in physical danger; and
2. it must be impossible or extremely difficult to get the principal’s instructions; and
3. the person must be entrusted with another’s property; and
4. the agent must act bona fide in the principal’s interests, and not merely for the agent’s own convenience.

In this case, it can be argued that the railway company was an agent of necessity as the four conditions for an agency by necessity are satisfied. First, there was a genuine emergency as the horse couldn’t be kept at a railway station at night. Second, it was impossible to get in touch with the owner of the horse as it arrived late at night. Third, the railway was entrusted with Swaffield’s horse. Finally, by sending the horse to a stable and feeding it, the company was acting bona fide in the best interests of Swaffield by looking after the safety and well being of his horse. The railway company should then succeed in their claim.

Lambert made an offer to buy land from an agent who in fact was manager and agent of the property on behalf of Bolton Partners. The agent had no authority to act for Bolton Partners, but he accepted the offer on their behalf. Lambert then sought to revoke the offer. Bolton Partners subsequently ratified the acceptance of the agent. The question here is whether the unauthorised actions of the agent could be ratified by the principal. What do you think?

In this case the question tells you what are of law you need to look at. So begin by explaining what agency and the principle of ratification are. Then set out down the conditions that need to be satisfied for ratification to be effective and whether the actions of the agent could be ratified by Bolton.

 An agency relationship exists when you (the principal) give your authority to another (an agent) to enter into a contract with a third party which will be enforceable both for and against you (as long as the agent was acting within their authority).

Where the agent has acted without the principal’s authority, but has nevertheless appeared to act on behalf of a principal, it is open to the principal to decide whether to ratify the transaction or not. If the principal decides to ratify the transaction, they assume the benefits and burdens of the contract from the time the agent acted. The effect of ratification is to create the relationship of principal and agent retrospectively.

For ratification to be effective, the following conditions must all be satisfied or the agent will be personally liable:

• The agent must clearly be acting as an agent.
• The agent must have a known principal in mind. It is not necessary that the principal be named; however, the principal should be capable of being ascertained at the time of making the contract.
• The principal must have contractual capacity at the time of making the contract.
• There should be an act capable of ratification. A contract that is void from its inception cannot be made good by ratification.
• The principal must have full knowledge of all the facts at the time of ratification.
• Ratification must occur within a reasonable time of the contract being entered into.
• Ratification may be express or implied by the conduct of the principal. The only time a special form is required is for the ratification of a deed.
• Ratification must apply to the whole contract.
• Ratification can only be retrospective.

In this case, the conditions all appear to be satisfied (go through them in your answer) and so the unauthorised actions of the agent could be ratified by the principal. A contract existed, as ratification related back to the moment when the contract between the agent and Lambert was concluded, which was before Lambert’s revocation. Lambert’s attempted revocation was too late.

Laws sold his hotel to a third party. After the sale, he allowed his name as licensee to continue to be displayed over the front door to the hotel. The persons who bought the business continued to purchase their liquor supplies, as Laws had done, from Tooth & Co on credit. Tooth & Co were not aware of the change of ownership. After several months of the new owners failing to pay their bills, Tooth & Co sued Laws for the cost of the liquor supplied. Who do you think would win – Tooth & Co or Laws? Why?

Again, from the facts you should be able to tell that this is an agency question. In this case, has Laws held himself out as a principal by leaving his name over the door of the hotel? Remember he was the previous owner and by leaving his name as licensee still on the entrance to the hotel, would you think he was still the licensee?

In this case, Laws has a problem. The question is whether there is enough evidence to establish apparent or ostensible authority. In trying to establish apparent or ostensible authority, the courts have been prepared to use objective evidence, including:

• the words or conduct of the principal
• custom or trade usage
• situations where the principal has appointed the agent to perform a task that implies a certain amount of authority; and
• whether the position creates an impression of authority.

Laws, by his inaction in not notifying the supplier or removing his name from the sign saying he was the nominee, prevents him from denying that an agency agreement existed. As a result, Laws will be liable to pay for the liquor supplied because, by allowing his name to remain over the front door of the hotel as licensee, he was representing to the public that he was still the owner. Because of Laws’s conduct, the rule of evidence called estoppel would prohibit him from denying that the purchasers were his agents. Thus, it was possible to infer that the new purchasers were his agent.

Just note that estoppel is a rule of evidence that prevents a person from denying the truth of a statement formerly made by them, or the existence of facts which, by their wording or conduct, have given the impression to others that the statement is true.

Lunghi had a block of land he wished to sell. He approached Sinclair, a real estate agent, to sell the land for him. Sinclair informed Lunghi that his (Sinclair’s) wife was an interested buyer, and after some time, and little buyer interest, Lunghi eventually sold the land to her. Lunghi subsequently discovered that Sinclair’s wife was a partner in the real estate agency and that no real attempt had been made to sell the land. It was, in fact, worth substantially more than he was told, and Mrs Sinclair had resold the land for a significant profit. What would you advise Lunghi of his options, if any?

Another problem question. The facts should alert you to the fact that this is an agency situation, so begin by explaining what an agency situation is and that one of the duties of an agent is not to receive a secret commission or make a secret profit.

An agency relationship exists when you (the principal) give your authority to another (an agent) to enter into a contract with a third party which will be enforceable both for and against you (as long as the agent was acting within their authority).

An agent must not make a secret profit, that is, a profit that should have gone to the principal. Where an agent has an interest in a contract, full disclosure should be made to the principal. Were the actions of Mrs Sinclair such that they could be said to amount to a secret profit?

An agent who has a direct or indirect interest in a contract proposed by a principal should make full disclosure. In this case Sinclair was under a duty to disclose the true value of the property and that the profit made by Mrs Sinclair was in fact a secret profit that should go to the principal (Lunghi).

An agent is entitled only to the agreed or customary payment for services performed. An agent must not make a secret profit. In this case, the Sinclair’s would be made to account for the profit and would also not be allowed their commission.

Pow appointed McCann & Co, a firm of real estate agents, to sell his flat. Without Pow’s knowledge or consent, the agents gave details to a sub-agent, who subsequently sold the property. While McCann & Co were instrumental in arranging the sale, were they entitled to any commission?

Another problem question but one that is much easier to identify as an agency case. Again, begin by explaining what an agent is and what are the responsibilities of an agent and then apply that you the facts above.

The question to consider here is whether McCann & Co had to act in person or could delegate their authority to a sub-agent. Where a personal confidence or skill is required by the agent, delegation is not possible.

Without Pow’s knowledge or consent, the McCann’s gave details to a sub-agent, who subsequently sold the property. While McCann & Co were instrumental in arranging the sale, they were not entitled to any commission because Pow’s contract with McCann & Co required their personal skill and competence, which could not be delegated.

Harrison, an auctioneer, advertised an auction of horses as being ‘without reserve’. This meant that the highest bona fide bidder should have been the successful bidder, whatever the price bid. At the auction, Warlow submitted a bid but the owner of the mare he bid on submitted a final higher bid that the auctioneer accepted. The plaintiff then sued the auctioneer, alleging a breach of the auctioneer’s contractual obligation to sell the horse to the highest bona fide bidder. Do you think the plaintiff would be successful in an action against the auctioneer? Explain why. 

Another problem question. Here you need to think about the role of the auctioneer and whether he was in breach of his contractual undertaking to sell to the highest bona fide bidder.

Where there is ‘no reserve’ (the minimum price below which the seller is not prepared to sell), the law is unclear as to whether or not the auctioneer has to accept the highest bid. The bidder cannot sue on the contract of sale because there has been no acceptance, and therefore no contract.

However, there may be a personal action against the auctioneer, as ‘without reserve’ indicates that the goods or property may be sold to the highest bona fide bidder. The English Court of Exchequer has held that by wrongfully accepting a bid from the owner, the auctioneer was in breach of his contractual undertaking to sell to the highest bona fide bidder. By advertising the auction as ‘without reserve’, he had undertaken to sell to the highest bona fide bidder—which would be the plaintiff in this case.