HI6027: Bowral Heritage Farms Case Study - Law Assessment Answers

November 03, 2018
Author : Mike Carey

Solution Code: 1DCC

Question: Bowral Heritage Farms Case Study

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Case Study 1

Adam wants to sell his flower shop business to Eve. Adam states that the flower shop turns over $600,000, and showed Eve a few monthly receipts to show that the company is turning over up to $50,000 per month on average. What Adam did not tell Eve was that during three months of the year during winter the flower shop only makes approximately $30,000 per month due to less variety on offer to customers. This impacts on the total annual turnover of the flower shop so it actually makes approximately over $540,000 annually in turnover only.

Eve bought the business from Adam on the evidence of Adam’s claims, and also on the belief that she can do a better job than Adam and increase the shop’s sales twofold.

Months after purchasing the business from Adam, Eve realised that the business only turns over so much, and is barely enough to keep the business running and pay its overheads. The business was therefore unprofitable.

a. Advise Eve of her rights, if any, against Adam and any remedies available

for her under common law.

b. Would your advice be different if Eve has asked Adam the exact turnover

of the business?

Case Study 2

Bowral Heritage Farms and Brian’s Flower Shop have been doing business together for over 10 years. Brian, the owner of the flower shop, orders flowers from Robert, the owner of Bowral Heritage Farms for his shop in the city.

Both Brian and Robert are septuagenarians and, despite their age, still continue to work and be actively involved in their respective businesses. Unfortunately, they have not moved on with technology and still continue to do business by post. On Mondays, Brian would post his order of flowers to Robert, who would usually receive the order the following day, and would send his confirmation the same day which Brian would receive on the Wednesday. Ordered flowers are then delivered Thursday. This has been their way of doing things since they started doing business together.

One Wednesday Brian, after not having received Robert’s confirmation of the order he posted last Monday, decided that Robert would probably not be able to fulfil the order because of the volume (Brian received a huge order for a wedding that weekend). Brian decided to order from another supplier Wednesday afternoon for delivery the following day and, because of the short notice, paid a

premium for his order.

On Thursday Robert’s flower delivery and the other supplier’s arrived to the

annoyance of Brian. Brian refused to pay Robert for his order as he thought

Robert was not going to fulfil the order after not receiving his confirmation on

Wednesday. What Brian and Robert were not aware was, there was a postal strike on Wednesday which delayed Robert’s confirmation mail of Brian’s order to Thursday afternoon instead.

a. Advise Robert of his options using case law

b. Would your advice be the same if Robert’s mail, instead of confirming the Brian’s order, advised Brian that he is only able to fulfil half of Brian’s order and delivered only half of what Brian ordered? Support your answer using case law

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Soltion:

Answer 1

IRAC Rule is applied while dealing with the problem.

Issues

  1. Can Eve sue Adam under common law for misguiding her? If yes then what penalties can be imposed on Adam for his actions?
  2. If Eve had clarified the facts regarding the turnover of the business prior purchasing the shop, then, would she still have any rights against Adam under common law?

Law

Whenever any contract is established between the parties then prior to its formation the parties enters into series of negotiations and discussions. The negotiations that are made part of the contract are called contract terms. But the main question arises regarding those negotiations that are not made part of the contract but are though intended by the parties to be abiding by such negotiations. (Clark, 2013)

When a contract is a written contract, then, the general rule is that no oral evidence is permitted which contradicts or vary or make alterations with the provisions of such written contract and is called parole evidence rule (Hutton v Watling (1948). But, there are few exceptions to it, one of them is misrepresentation. (The Law Teacher, 2016)

When any representation is made which is intended by the parties to be abide by it can become part of the contract. But, there are times when one party makes misrepresentation and it is on the basis of such misrepresentation the other party enters into such contract. In such scenario, the aggrieved party has every right to terminate the contract as the same is based on misrepresentation. The main ingredients to prove misrepresentation are: (Sydney, 2016)

  1. That the party has made a statement of fact;
  2. Such statement o fact is not of future but of present or past and is analysing in Clasic International Pty Ltd v Lagos (2002).

  • That the statement of fact made by the party is untrue. There is an obligation on the seller that he must disclose to the buyer each and very true fact relating to the purchase article. If the seller intentionally does not tell the truth or conceives half of the truth of the statement of fact, then, it is not an honest statement and comprise as a misrepresentation and is held in Demagogue Pty Ltd v Ramensky (1992).

  1. The main intention of the disclosing party while concealing the truth of the statement is to compel and induce the buyer to rely on the statement so made so that he can be persuaded to establish a valid legal contract with the party who is making the representation.
  2. Lastly, the buyer must have considered such statement of fact as a true statement and have established a legal valid contract with the party who is making the representation provided the buyer has no knowledge of the defect in the statement so made and the law is rightly established in Gould v Vaggelas (1984).

Thus, all the five elements constitute misrepresentation and empower the relying or aggrieved party to seek remedies under common law.

The aggrieved party has right to terminate the contract or many even seek damages against misrepresentation and is held in (Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993). (Barnett & Harder,

The common law of misrepresentation is now applied to the facts.

Application of Law

Adam wishes o sell his shop to Eve. A statement of fact is made by Adam to Eve, that, the shop turnover is over $600,000. To prove this statement of fact he also showed Eve few monthly receipts with a turnover of   $50,000. However, he intentionally concealed a fact that during three months the monthly turnover is only $30,000. The truth was concealed with an intention so that Eve purchases the shop from Adam  because if the fact would have known to her she would definitely not have purchased the shop from Adam. Based on the representation made by Adam, Eve purchased the shop.

In the given scenario, all the elements of misrepresentation are present as Adam intentionally made a statement of fact which was not true in order to persuade Eve to purchase the shop which was actually purchased by Eve by relying on the steamed made by Adam. Thus, Eve is misrepresented by Adam and thus has every right to cancel the contract or claim damages for the breach.

However, if Eve had clarified the facts regarding the turnover of the business prior purchasing the shop and is aware of the facts then Eve cannot deny the contract that existed amid Adam and Eve as there is no misrepresentation which defeat the intentions of the parties.

Conclusion

Thus, all the elements of misrepresentation are present in the case in order to make the purchase invalid at the option of Eve. However, if Eve would have known the defect then the law of misrepresentation is not applicable.

Answer 2

Issues

  1. Whether there exists a valid contract between Robert and Brain?
  2. If Robert has not approved of the order of Brain but had made variations to the said order, then, whether there exists any contractual relationship between the two?

Law

In order to understand the relationship between Brain and Robert it is important to analyse the elements of contract.

A contract is a composition of five essentials that is, an offer, an acceptance, capacity of the parties, consideration and intention of the parties. (Davis, 1985)

An offer is a proposal which is made by an offeror to an offeree through which an offeror transfers his intention of undertaking or forgoing any tasks to an offeree with an expectation that such an offeree will confirm to the desires of offeror without any changes (Gibson v Manchester (1979)). (Taylor & Taylor, 2015)

When an offeree approves to the expectations of an offeror without any variations then it is called acceptance. However, if the offeree while making an acceptance makes any changes in the terms of the offer, then it cannot be held as an acceptance and it is held in Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd (1977) that such conditional acceptance is called counter-offer which is not an acceptance in law. When a counter offer is made then it cancels the offer and the counter offer made by the offeree is considered as a new offer which can be approve by the original offeror and is held in Hyde v Wrench (1840). But, in Stevenson Jacques  (1880) it was laid down that only resolving queries is not a counter offer and does no cancels he original offer. (Taylor & Taylor, 2015)

Now, in what form an acceptance must be made must be specified by the offeror while making the offer. If no specification is made by an offeror then an offeree must made an acceptance through reasonable mode. In Empirnall Holdings v Machon Paull (1988) it was held that when a particular form of acceptance is undertaken by the parties in the course of dealing then such mode of acceptance is considered as a valid mode and any cadence made through such a mode is valid in the eyes of the law of contract.

Now, if an acceptances is made to an offer then it is normally consider as complete only when the same comes within the knowledge of the offeror and is held in Latec Finance v Knight (1969). But when an acceptance is made through post then it is complete as soon as the letter is posted and a valid agreement is made amid the parties there and then and is held in Bressan v Squires (1974).

Application of Law

Both Robert and Brain were doing business from past ten years. There is no specification as to how an offer and acceptance is made and deem complete. Thus, by applying the law in Empirnall Holdings it is submitted that such mode is deem to be applicable that is followed by them since these ten years.

As per the routine, Brain orders flowers from Robert through post. He order them on Monday which is received by Robert on Tuesday who in turn sends the confirmation on Tuesday itself and such acceptance is received by Brain on Wednesday and on Thursday the flowers were delivered.

However, once, no confirmation was received by Brain on Wednesday and he assumed ha Robert must have denied his offer because of the quantum of order.  Brain ordered from the other supplier. But, on Thursday flowers were delivered by Robert.

It is submitted that a particular mode of acceptance was established by both Robert and Brain. Thus, an acceptance is deeming complete if such mode is followed. Robert by complying with the mode of acceptance sends his confirmation through post on Wednesday. By applying the postal acceptance rule his acceptance is complete as soon as the letter is posted. Thus, Brain has no choice and a valid connect did exist amid Robert and Brain.

The postal strike does not invalidate the postal acceptance rule and the parties are still considered to be bound by the contract.

If Robert has not approved of the order of Brain but had made variations to the said order then it is nothing but a mere query which is neither an acceptance nor a counter offer. Thus, the offer subsists which can be later approved by Robert.

Conclusion

Thus, there is a valid contract between Brain and Robert as the acceptable mode of communication of contract was followed by the parties resulting in a binding contract. Also, mere inquiry is made by Robert, thus, such inquiry will not cancel the offer and the offer still subsists and may be accepted later.

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