Introduction To Commercial Law

Table of Contents

Task One

Case Scenario One. 3

Case Scenario Two. 6

Case Scenario Three. 8

Case Scenario Four. 9

Case Scenario Five. 10

Case Scenario Six. 13

Case Scenario Seven. 15

Case Scenario Eight 17

Case Scenario Nine. 19

Case Scenario Ten. 20

Case Scenario Eleven. 21

Task Two. 22

Case Situation One. 22

Case Situation Two. 23

Case Situation Three. 24




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Task One

Case Scenario One

The key issue, in this case, is to understand whether the friends had an intention to enter into a valid contract. In order to determine the same, the case considers elements of contracts as well as law-related to the intention to create legal relations as applicable to this case.

As per the law of contracts, in order for a contract to be valid, there must be certain elements present in the contract including offer, acceptance, intention to create contract and consideration. As per the law related to the intention to create a legal contract, there are two methods to determine whether there is an intention to form legal contracts or not. These two methods can be given as follows:

  • The objective test: Under this method, the courts assess the intention to form legal relations based on the test whether a reasonable bystander would determine whether the parties intended to form a legal contract or not.
  • The rebuttable presumption: Under this method, the courts assess the intention to form legal relations based on the type of relationship between the parties. In this method, contract between family members are presumed to have to legal implications, social contracts have no presumptions but are judged on their merits, commercial relations have a strong presumption of intention to form legal contract while collective agreements have presumption of no contract.

Based on this understanding of the contracts law, it can be seen that there does exist an intention to form a legal contract amongst the friends. As per the objective test, a reasonable bystander would find that there does exist an intention to form legal contract as all the terms of the contract are explicitly stated and agreed upon by all friends.

Further, as per the rebuttable presumption method, there is no presumption in this case as it is a social contract. Hence, the legal intention will be determined based on its merits. In this case, all the other elements of contract can be found to be present as follows:

  • Offer: The offer amongst the friends was to share expenses in lieu of sharing the prize money if any of the friends win.
  • Acceptance: All the friends accepted the offer and acted accordingly.
  • Consideration: The consideration in this case was sharing of the expenses in return for sharing the prize money if any one wins.

Hence, it can be seen that there is a strong merit to the contract being valid and therefore by this method, there does exists an intent to form legal relation.

In the case of Welch v. Jess (1976) [1] where two friends Welch and Jess agreed to share expenses towards a competition and share the prize money in case any of them win. However, when Jess won, he refused to share the prize money. In this case, the courts found that there certainly was an intention to form a legal contract and that Jess must share the prize money as per the contract.

Another judgement given in the case of Parker V. Clart (1960) [2] states that social agreements can be considered to be valid contract if it complies with the objective test wherein there appears a reasonable intention to form a contract based on the terms of the agreement.

Judgement: Based on the understanding of the law related to intent to create legal relations and the relevant case laws, it is clear that there does exist an intent to create legal relation amongst the friends and therefore there is an intention to create a contract.

 

 

B.

The key issue in this case is to understand whether Ben and the organizers intended to create a contract or not. In this case, Ben won a prize money of $25,000 but the organizers decided to pay him only $15,000 as prize money. The agreement as signed between Ben and the organizers in the form of an entry form states that the decision by the organizers will be final and not to be questioned in any court of law. In order to resolve this issue, the case should be assess for intention to create legal relation in the context of the clause stating that decisions by the organizers will be final and not contestable in any court of law.

Similar situation is found in the case of Rose & Frank Co v JR Crompton & Bros Ltd (1924) [3] where the agreement as signed by the parties included a clause stating that the agreement was not a formal agreement and that it shall not be subject to legal jurisdiction in the law courts.  In this case, the courts found that as the parties agreed to clause and accepted the same, the agreement as made between the two parties cannot be considered to be having an intent to form a legal contract.

Judgement: Based on the understanding of the case as well as the case law, it is clear that there does not exist any intention between Ben and the organizers to enter into a legal contract.

 

 

Case Scenario Two

The issue in this case is to determine on the basis of the legal ingredients of offer and acceptance whether Joe has a valid contract with Deer Exporters Ltd. or with Tau or with each of them or neither of them.

First of all, the advertisement as given by Joe cannot be considered to be an offer as it was an invitation to treat and not an offer. Similar judgement was given in the case of Carlill v. Carbolic Smoke Ball Co. (1892) [4] where the courts held that an advertisement that is communicated to general public without specific details of the agreement cannot be considered to be an offer but an invitation to treat. Hence, there was no offer made by Joe when he posted the advertisement.

The first offer in this case was from Deer Exporters Ltd. where they offered to purchase the herd for the advertised price but in 5 consecutive interest free instalments of $30,000. However, this offer was rejected as Joe made a counter offer stating that he wants a downpayment of $50,000 and balance payment by 2 installments of $50,000 each. As per the law of offer and acceptance, any counter offer automatically cancels the previous offer. Similar judgement was given in the case of Hyde V. Wrench (1840) [5] where the courts ruled that the counter offer cancels the original offer.

Further, Deer Exporters sent a counter offer by a letter stating that they can go ahead with the sale for $30,000 down payment and balance payment by two instalments of $40,000. This again is a counter offer communicated via post and as per the rule of post, the acceptance to the offer made by post can only be confirmed when the letter of acceptance is posted by the acceptor. However, in this case, Joe has not sent any letter of acceptance to Deer Exporters  Ltd. and hence there is no valid contract till this point of time. Similar judgement was given in the case of Adams V. Lindsell (1846) [6] where the courts ruled that acceptance to an offer cannot be considered to have occurred until the party to accept the offer has posted the letter of acceptance.

The next offer in this case is formed when Tau offers to buy the herd for $160,000 by cheque payment the next day. This offer was also accepted by Joe. Hence, based on the rule of offer and acceptance, a valid contract is formed between Tau and Joe.

Deer Exporters Ltd. claims that as they had sent a letter to Joe before he had accepted the offer by Tau they had a valid contract for sale of herd with Joe. This claim could have been valid as per the case law given in the case of Henthorn V. Fraser (1892) [7] where the courts ruled that an offer can be considered to have accepted when the letter of acceptance is posted. However, Deer Exporters Ltd. also made a counter offer in their alleged letter of acceptance where the terms of payment are changed. As per the case law given in the case of Hyde V. Wrech (1840), any counter offer automatically cancels the previous offer and hence due to the counter offer in the letter of acceptance, the original offer stands cancelled and hence there is no valid offer to be accepted by Deer Exporters Ltd.

Therefore, at the end of the case, Joe only has a valid contract with Tau.

 

 

Case Scenario Three

The issue in the given case is to determine on the basis of law of consideration whether Fred will be successful in recovering a dollar from the driver of XJ8 Jaguar motor car or not. The driver had promised Fred to give a dollar for washing of his car windscreen after Fred had washed the windscreen as the driver did not had the money at that point of time.

As per the law of consideration, specifically the principle of past consideration, the promise for any consideration after the specific performance involved in the contract is not legally valid. This implies that as Fred had already washed the windscreen before the driver made the promise of paying a dollar, the specific performance being already performed, the consideration of a dollar to be paid at a later stage is not legally valid.

In the case of Re McArdle (1951) [8], Re McArdle made improvements to a bungalow and was promised payment from the proceeds of sale of the bungalow. The courts in this case ruled that as considerations of the past are not legally valid and that Re McArdle doesn’t stand to get the payment as promised.

Based on the understanding of the law of consideration and the case law, it is clear that Fred will not be able to recover a dollar from the driver due to the principle of past consideration.

 

 

Case Scenario Four

The issue in this case is to apply the Minor’s Contract Act 1969 and assess whether the courts will declare the contract between the minors and the credit union to be valid and enforceable.

As per the provisions of the Minor’s Contract Act 1969, the contracts entered into with Minors who are below the age of 18 are not considered to be valid and enforceable. Further, the contract was formed due to the fault of the credit union employee where he miscalculated the age of the minor applicant for their debt application.

In the case of Morrow and Benjamin Ltd. V. Washington (1989) [9], the courts gave the ruling that as per the Minor’s Contract Act 1969, the contract entered into with minors cannot be considered to be valid and enforceable. The credit union can however recover their damages without penalizing the minors which in this case implies selling the car to recover the debt which they have already done. Now they cannot successfully sue the minors even if their recovery was not complete.

 

 

Case Scenario Five

The key issue in this case is to assess whether the couple will be able to successfully take legal action against Eddie on the grounds of misrepresentation.

The four principles of misrepresentation highlights the four key elements which are required in order to establish misrepresentation. These principles can be explained and applied to the case as follows:

  • Misrepresentation should have been made before or at the time of forming the contract: As per this principle, the misrepresentation can be considered to be valid only if it was made before or at the time of contract formation. If it was made post the contract formation, it cannot be considered to be a misrepresentation. In the given case, Eddie told the couple that the house was in first class condition and not noisy which was a misrepresentation made before the contract was formed.
  • Misrepresentation is a term in the contract: As per this principle, the misrepresentation should be a material statement which is important for the formation of the contract. In the given case, the couple specifically wanted to buy a house which was comfortable and safe for them as well as the baby that they are expecting. Towards the same, they wanted to ensure that house was in good condition and not noisy. Eddie misrepresented both these terms as the house’s heating system was not good as well as the house was noisy. Hence, there is a misrepresentation of the term of the contract in this case.
  • Misrepresentation is a false statement of fact: As per this principle, the misrepresentation should be a statement which falsely represents a fact. In the given case, Eddie falsely represents the fact that the house was not in a good condition as well as it was noisy. Hence, it is false statement of fact.
  • Misrepresentation should be made by contracting party or on behalf of contracting party: As per this principle, the misrepresentation should be made by the parties involved in the contract or on behalf of the party involved in the contract. In this case, the misrepresentation was made by Eddie who is a party involved in the contract. Hence misrepresentation is made by a contracting party.

It can be seen from the above discussion that all the four principles are found to be present in the given case and therefore it can be concluded that misrepresentation has been made in this case by Eddie. Similar judgement is given in the case of Bisset V Wilkinson (1927) [10] where the courts ruled that if all these four principles of misrepresentation are found to be present in the case then it can be considered that misrepresentation has been made in the case.

 

 

The couple are entitled for the damages that have occurred to them viz. expense towards replacement of central heating system and the expense towards motel where they had to stay during the replacement process as these damages were a result of the misrepresentation by Eddie. However, they are not entitled towards the damage due to reduction in the value of house due to opening of day center for homeless teenagers at the house next door as it was an event post the contract and therefore not material to the contract between Eddie and the couple. Similar judgement is given in the case of Whittington v Seale-Hayne (1900) where the courts ruled that damages as a result of the misrepresentation can be claimed.

 

 

Case Scenario Six

The key issue in this case is to understand and apply the three rules of unconscionable bargains as applicable to the case and to judge whether the sale of property between the elderly widow and Dr Donald was an unconscionable bargain or not.

The rules of unconscionable bargains can be given as follows:

  1. Significant Disability: The party being at the disadvantage in an unconscionable bargain must have some significant disability which can led the party to an unconscionable bargain. This rule can be applied to the given case as the elderly widow has a significant disability in the form of anxiety to sell the property at the earliest in order to be able to make purchase of the last available unit in a gated village nearby.
  2. Knowledge of disability: The party taking the advantage of the other party in an unconscionable bargain must have the knowledge of the disability of the party being disadvantaged. As per the details given in the case, Dr Donald was well aware of the disability as described above at the time of making the contract for purchase of the property.
  3. Display of Victimization: The party taking the advantage of the other party in an unconscionable bargain must be displaying an act of victimization of the party at disadvantage. In this case, it is a clear demonstration of victimization of the elderly widow by the doctor as he offered to buy the property well below the market price of the property by having the knowledge of her significant disability.

A similar case is found in the case of Nichols v Jessup (1986) [11] where the courts found that the presence of these three rules of unconscionable bargain to be leading to an unconscionable bargain and ordered the party at the advantage to remedy the disadvantaged party to make it an conscionable bargain.

The judgement in this case will be that there is a clear case of unconscionable bargain by Dr Donald and he will be asked to pay the fair price for the property i.e. around $320,000.

 

 

Case Scenario Seven

Restraint of trade is a provision provided as per the employment act in order to protect the interests of the employer by preventing unreasonable trade practice by the employee towards the employer. As per the provisions of this trade, it generally implies that the employee cannot perform the similar act or business as the employer for a reasonable amount of time and in a reasonable extent of geography. In the case of Monica and Isabella, the provision provided that both of them will not carry on the business of beauty salon for the duration of their partnership and 5 years thereafter within 8 kilometers of the current or future salon that they are involved with. However, as the partnership was dissolved one year ago and Isabella is working within the 8 km radius of Monica’s salon, she can be asked to shift her workplace beyond the 8 km radius of Monica’s salon.

Case Law: Mitchell V Reynolds Lord Smith LC (1711) [12]

 

 

One of the key provisions of the law related to restraint of trade is that it should be reasonable in terms of the duration of restraint and geographical limitations imposed by the restraint. In the given case, the duration of restraint is given as 10 years which is very high and is unlikely to be considered as reasonable by the courts. Hence, it is not likely that it will be held by the court.

Case Law: Broad V Jolyffe (1620) [13]

 

 

Case Scenario Eight

A.

  1. Section 7(3)(a)

As per this section, a party to the contract can cancel the contract if the contract has been entered into by misrepresentation by the other party or on behalf of the other party. In this case, Andy entered into the contract with a misrepresentation that he would take the job as per the agreed terms while not being able to do so.

  1. Section 7 (3) ( c )

As per this section, a party to the contract can cancel the contract if it is clear that a term in the contract will be broken by the other party. In the given case, it is clear from the communication by Andy that he will not be able to begin the task by the agreed date and therefore it is clear that the contract will be broken by him.

  1. Section 7 (4) (a)

As per this section, a party can exercise their right to cancel the contract if the performance of term responsible for cancelling the contract was important to them. In the given case, it is clear that Martha wants to repaint the house because she intends to auction the house in first week of September. This is an important term in the contract as repainting post the auction will not be serving the purpose of the repainting. Therefore this term is also applicable to the case.

  1. Section 8 (1)

As per this section, the contract cannot be considered to be cancelled until the cancellation is made known to the other party. In the given case, Martha communicated the cancellation of the contract to wife of Andy about the cancellation of the contract.

Based on the above discussion, it is clear that the contract is cancelled specifically due to the Section 7 (3) ( c ) and the contract will be considered to be cancelled as the message was left with Andy’s wife.

 

B.

Based on the discussion given above, it is clear that the contract will stand cancelled and that Andy will be responsible for paying the damages to Martha for the additional charge that Martha had to pay to other painter.

 

 

Case Scenario Nine

The key issue in this case is to assess whether the car company is liable to pay the damages towards missed flight and the loss of the contract for McCullum or not.

Based on the case law given in the case of Robinson V. Harmon (1846) [14], it can be determined that the car company will be liable to pay for the missed flight to McCullum as it was an express term in the contract that he has to picked up at 6.00 am to catch a flight at 6.40 am. However, the company will not be liable to repay the damages due to lost contract as the achievement of the contract is not certain and hence not a foreseeable damage.

  1. The car company will have to pay for the missed flight but not for the damages towards lost contract.

 

 

Case Scenario Ten

A.

The key issue in the given case is to determine whether Chris still has some money to be recovered from Beth or not. In this case, both Chris and Beth are at a disagreement regarding the color of the flowers and eventually as a result Beth gave a cheque of lesser amount to Chris as full and final settlement. Chris banked the cheque and after three months as he needed money, is considering to claim the pending money.

As per the case law given in the case of Haines House haulage Co. Ltd. V Gamble (1980) [15], if a lesser amount is being given towards full and final settlement and that the receiver is not satisfied with the amount, he / she must claim the pending amount within 10 days that the cheque is not accepted as full and final settlement. Post the period of 10 days, it will be accepted that both parties agree the said amount to be full and final settlement.

 

 

Case Scenario Eleven

The parties to the contract are

– Employee

– Employer

The two obligations of each party can be given as follows:

– Employee: A. Work as per the code of conduct of the organization. B. Ensure confidentiality of important organizational information.

– Employer: A. Provide atleast 5 paid sick leaves every year. B. Provide 3 weeks of paid leave every year.

C.

One clause for dispute resolution in the contract can be explained as follows:

It is the right of the employee to contact his / her manager in case of any dispute. The employee should not contact any other person other before contacting the reporting manager regarding the dispute.

D.

Two common clauses related to employment contracts can be given as follows:

  • Termination clause: As per the provisions of this clause, the employment agreement can be terminated by the employer if the employee is absent from work for three consecutive days without informing the employer.
  • Policies: The employee must abide by the policies as dictated by the employer during the course of his / her employment.

 

 

Task Two

Case Situation One

  1. Simon is the agent and the furniture company is the principle. The responsibility of the agent is to make purchase not exceeding $50,000 for a single order.
  2. Method of creation of agency used in this case is Agency by Express Agreement.

 

 

Case Situation Two

  1. Doren is the agent and the rugby club is the principle. The responsibility of the agent in this case is to have clear communication with the principle and not to misrepresent the price of the purchase.
  2. The method of agency creation used in this case is Agency by Ratification.

 

 

Case Situation Three

The key issue in the given case is that is the contract entered into by Alden on behalf of Prime Fashion Ltd. and the supplier is valid or not.

As per the law of agency, the contract can be considered to be valid if the other party involved in the case has a reasonable belief on the agent’s authority to enter into the contract. In this case, Alden was a regular purchaser for Prime Fashion Ltd. from the supplier which can imply a reasonable authority of Alden towards making the said purchase. Similar judgement was given in the case of Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd (1964) [16]where it was held that contracts entered into by the agents of the principle must be honoured if there is a reasonable belief on the side of the other party to the contract regarding the authority of the agent for entering into the contract.

  1. There is a valid contract between Prime Fashion Ltd. and the supplier and the company will have to honour the purchase.

[1] Welch v Jess [1976] NZ recent Law 185

[2] Parker v Clark [1960] 1 WLR 286

[3] Rose & Frank Co v JR Crompton & Bros Ltd [1924] UKHL 2

[4] Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1

[5] Hyde v Wrench [1840] EWHC Ch J90

[6] Adams v Lindsell (1818) 1 B & Ald 681

[7] Henthorn v Fraser [1892] 2 Ch 27

[8] Re McArdle [1951] Ch 669

[9] Morrow & Benjamin Ltd v Whittington [1989] 3 NZLR 122

[10] Bisset v Wilkinson [1927] AC 177

[11] Nichols v Jessup [1986] 1 NZLR 226

[12] Mitchell V Reynolds Lord Smith LC (1711)

[13] Broad v Jolyffe (1620) Cro Jac 596

[14] Robinson V Harmon (1846)

[15] Haines House Haulage Co Ltd v Gamble [1989] 3 NZLR 221

[16] Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 48

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