Commercial Law - Alex - Grace - Harold - Assessment Answer

Commercial Law Assignment

Assignment Task

Question 1

Grace is over 90 years old and lives alone. She is devoted to her favourite relative, her nephew John. John tells Grace that he would like to lease her classic 1966 MGB convertible from her for two years. It has been sitting unused in Grace’s garage since her cataract operation ten years ago. John says he will pay Grace $2000 all up for the privilege. He adds that if she doesn’t agree he will stop helping her with shopping and around the house – in fact he will stop visiting her altogether.

He hands her a page containing a written offer which he has already signed. She can’t find her spectacles because John has hidden them but, trusting him, she signs her acceptance at the foot. In fact the offer is not to lease the car but to buy it for $2000.

After giving Grace the $2000 and taking possession of the car John purports to sell it to Sam for $50,000. Grace’s niece Judy finds out what has happened and tells Grace. Grace is very upset.

Judy asks you whether Grace can recover the car from Sam. Tell Judy what rights you think Grace has, giving your reasons.

Question 2

(a) Alex approached Tom purporting to act on Peter’s behalf, and on that basis wrote out a formal order for Pinot Noir (red) grapes from Tom’s vineyard which Tom accepted. At harvest time Tom delivered the grapes to Peter’s winery but Peter refused to accept them or pay for them, saying that he had told Alex to buy only Pinot Gris (white) grapes. Advise Tom. Can Tom sue Peter? Might Tom have any other options?

(b) Assume that, after accepting the order as above but before harvesting the grapes, Tom wrote to Peter saying that because Peter had not personally confirmed the order he had sold the grapes elsewhere and therefore would be unable to deliver them. Peter tells you that before hearing from Tom he had talked to Alex and had decided that because the price was a bargain he would take the Pinot Noir (red) grapes after all. Advise Peter. Can Peter sue Tom?

Question 3

Harold is a builder who has been engaged to renovate a terrace house in Paddington. The owner has moved out for the duration, and to expedite the renovation has removed all his personal property to a garage at the rear of the house.

(a) In the course of repairing an old fireplace in the dining-room Harold took out a removable panel at the back of the grate. In amongst the dust and soot in a cavity behind the panel he discovered a small box covered with faded red velvet. He took the box home, and when he opened it found it contained three rings set respectively with a large ruby, a large sapphire and several small diamonds (all subsequently confirmed for him by a jeweller).

(b) While digging a trench in the back yard Harold dug up a locked iron box, rusty but solid. He took this box home too, and after prising it open found it contained number of old gold coins.

Harold has come to you about what he has found. He says that he knows the saying finders keepers losers weepers, and that he has also been told possession is nine tenths of the law. He is a bit of a rough diamond but an honest man. He wants to know whether or not he is able to keep what he has found. Advise him.

Question 1

The existing regulation in Australia does not enforce all contracts, especially, an illegal contract. The legality of a contract influences its enforceability. In contractual law, illegal contracts by statute or regulations will be subject to its enforceability as per the requirements in the statute. Contracts that are absolutely forbidden by law or statute are void, whether the parties to the contract recognise its legality or illegality (Andrews, 2011). Nevertheless, when a single party to a contract conducts an otherwise legal contract, in a way that infringes the law; the other party to contract, if possessing no knowledge of the facts and factors that gives rise to its illegality, can still recover the damages of the contract, or even enforce the contract. In such a case, the victim can recover property or money transferred under the contract. In contractual associations, the nature and concept of the obligation is ascertained by the terms prescribed in the contract. In this case, John and Grace, by entering into leasing contract, the parties had agreed to accept the resultant effects or obligations. However, in this case, there is no complete freedom on the entering into the contract, since some of the terms, as prescribed by the contract had not been followed (Hogg, 2011). Under the unfair contract terms, the parties to a contractual obligation should intend to create contractual and legal obligation founded on mutual consent for the contract to be binding. Hence, as a result, the contract between John and Grace is illegal as it is not based on mutual consent. Furthermore, the manner of entering the contract was based on manipulation and exploitation, and hence, the victim, Grace, is subject to coerced contractual obligation, which is not based on mutual consent (Andrews, 2015).

At common law, illegally enforced contracts, as in this case, are generally unenforceable and void by either party. Hence, the money or property that is transferred cannot be recovered. However, in the case where the legally established contracts are conducted in an illegal way; that is, the illegality of the contract was not the required or intended part of the contract; but, it was consequential or incidental to the manner it was performed, then the contract between the parties is void (Paterson, 2011). Under these circumstances, the innocent party is entitled to all the remedies and rights, provided that, the party did not recognise that the contract was being performed illegally. Also, the guilty party has not remedies. Thus, in this case, the conduct of the contract between John and Grace was performed illegally, as Grace was exploited and taken advantage of by John. As a result, Judy can seek legal redress, as Grace is entitled to all the remedies and rights, and John is not. Furthermore, the Australia Contract Law (ACL) s. 18 offer’s measures that influence the enforceability of a contract (McKendrick, 2014). The measures include; unconscionable conduct, deceptive and misleading conduct, and misrepresentation of certain terms of the contract. In deceptive and misleading conduct, the parties to the contract are required under ACL s. 18, to act in a manner that does not deceive or mislead the other party.

1. Deceptive and misleading conduct: In this, John made inaccurate and false claims, omitted essential information, and formed a false illusion, and hence, his conduct can be considered as being misleading and deceiving.
2. Misrepresentation: John misrepresented the substantive matters of the contract, such as, the value or price of the car.
3. Unconscionable conduct: ACL indicates that a unconscionable conduct covers both the unwritten and written doctrines. In the unwritten doctrine, parties to the contract are required to act fairly. In this case, John acted unfairly by hiding the Grace’s spectacles, and misleading her on the material aspects of the contract. Hence, John exploited Grace’s inability to see, and thus, exploited her disability Blomely vs. Ryan [1956] HCA 81 AT [9]. Also, ACL S. 21A indicates that in written unconscionable the parties to the contract must not engage in activities that are considered as being unconscionable, particularly, considering the strengths and weaknesses of the parties to the contract (McKendrick, 2014).

Thus, Judy is entitled to seek damages, either in terms of property or money, as the contract between John and Grace is considered void.

Question 2 (a)

Alex, Tom, and Peter’s case covers the aspects of the law of agency. The law of agency is a field of commercial that deals with contractual, non-contractual, and quasi-contractual fiduciary relationships, which involve an individual known as an agent, who is authorised to act on behalf of another, principal, and form legal relationships with a third party. In this case, Alex is the agent acting on behalf of Peter (principal), and Tom is the third party (Chopra and White, 2011). The law of agency requires that the agent (Alex) to carry out duties and tasks as specified by the agency contract, and discharge those duties with due diligence and care. Consequently, the principal (Peter) should disclose all the relevant and material information that the agent, Alex, is required or authorised to negotiate and form legal associations with the third party. In this case, the principal (Peter) accepted the initial terms of the contract for the delivery of Pinot Noir (red) grapes, and hence, the principal is bound by the contractual obligations between the agent and third party. Furthermore, based on the principal’s acceptance of the initial terms of the contract, it can be assumed that the agent and principal disclosed to each other all the material information (Adams and Bomhoff, 2012).

Under the Agent’s Act 2003, if the agent to a transaction has apparent or actual authority, he/she is not legally responsible for actions conducted within the scope and nature of such authority, provided that the relationship between the agent and principal is disclosed. However, when the relationship is partially or undisclosed, the agent and principal are liable (Yackee, 2012). The principal is not bound where the agent had no apparent or actual authority. In this case, the relationship between the principal, Peter, and his agent, Alex, can be considered to be partially or fully disclosed. As a result, Tom should hold both the principal, Peter, and his agent, Alex, liable.

Question 2 (b)

Under the fiduciary relationship, which exists between a principal and an agent, the agent owes the principal certain duties. The agent must act behave or act as specified by the terms of the contract or agent, and discharge his/her duties with due diligence and care. In this case, Alex (agent) failed to inform the third party (Tom) that peter had accepted the order, and subsequently the terms of the contract. As a result, Alex failed to act in the specified terms of the contract, and also, with due diligence and care (Styhre, 2016). Hence, there existed no contractual agreement between Peter and Tom. Hence, Peter cannot sue Tom. However, Peter can sue his agent, Alex, for failing to act within the terms of the contract, and behave or act within the scope of the authority conferred to him.

Question 3 (a)

In Harold’s case, the concept of “finders keepers losers weepers may apply. However, it is not as simple as it seems. The Australian law is not entirely clear; however, the generally accepted perspective is that the owner of the ‘found’ property can renounce or abandon ownership, and this transfers ownership to the finder (Cleary, Jackson, & Walter, 2013). In this instance, the person that found the abandoned property, or comes into possession of the property through means that suggests abandonment, may become the owner of the property by appropriating it; that is, keeping the property, and thereby, forming an intention to own it. The intention of Harold to appropriate the property is clear; however, it is hard to infer intention of the ‘first owner’ who may or may not have the intent to abandon the property. In this regard, what are the consequences if the ‘found’ property is not abandoned by the first owner?

If the original owner (first owner) becomes aware of the appropriation of the property, he/she may need the property to be returned, and in the case of a loss, may obtain damages (Hutchison, 2015). Also, the appropriation of a ‘found’ property can also constitute larceny. Here, it occurs if the first of the found property is unknown, especially, in Harold’s case. Unless, Harold proves not to have a genuine belief that the property had been renounced or abandoned and can be appropriated, he would not commit larceny. The old notions “possession is nine tenths of the law”and “finders keepers”indicate that the finder of a property can keep it (Seidenberg, 2011). However, the first owner can claim ownership, or recovery of the property through damages, in case of a loss, provided that he/she proves that the property was not abandoned. In this case, until such a time when the first owner, or the owner of the yard or house, appears to assert his/her claim on the property, Harold may use the property, albeit may run a risk of a possible risk of liability for loss or damages, and also, an offense of larceny, if there is no reasonable cause to believe that the property had been renounced or abandoned. Thus, Harold should consider whether there exists a reasonable cause to constitute abandonment of the property (Varga, 2014).

The Australian Police Act 1998 has provision for ‘found property.’ The provisions consider ‘found property’ as every personal property, which had been lost, and its owner is not known, at the time of its recovery. In this regard, if Harold delivers the ‘found property’ to police, he is entitled to claim the property within 42 days, if the owner has not been found (Wheeler, 2014). The Police Regulations 2014, made under Police Act 1998 gives police the authority to hold ‘found property’ for no less than two months, after which, they may then return the property to its original owners. Also, s. 75(2)(a) of the Police Regulations 2014, infers that the finder will not gain the title to the property against the first owners of the property until five years from the day the property was returned to the finder. However, the finder is required to indemnify the police, in case, of any court action by the first owner. Also, under the NSW Limitations of Actions Act 1936, the first owner is not able to maintain court action for tort after 6 years (Cleary, Jackson, & Walter, 2013). Furthermore, for Real Estate the limit is 12 years. In New South Wales (NSW) someone who has the possession of a found property has a better title to the property than anyone except the first owner. However, to avoid cases of larceny, the finder must submit the property to the police. In NSW, larceny is punishable for a period of up to five years, community service, home detention, and good behaviour bonds. Also, the offender should generate reparations to the victim. In this regard, Harold faces significant risks is he retains the property that he found. The safest course of action for Harold is to deliver the property to police, and make a claim for the property if they have not been taken by the original owner.