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CONTRACT LAW PROBLEM QUESTIONS

QUESTION 1: MOOKIE V BO-PEEP FILMS Bo-Peep Films ("Bo-Peep") is the owner of all legal rights pertaining to a number of films, including Merino Madness ("the film"), an exciting story of the mirthful adventures of a group of Aussie sheep shearers set in the Australian outback during the 1950's. The film was not successful when shown in Australian cinemas and was unable to make any impact when released to the American market. However, it proved popular with British audiences.

On 1 February 1990, Bo-Peep entered into a contract with Mookie International ("Mookie") for release of the film in Japan. After reciting that Bo-Peep is the owner of the film rights and that Mookie is a film distributor with knowledge of the Japanese market, the contract continued: 3.

Bo-Peep grants to Mookie the right to distribute the film for showing at cinemas in Japan.

4.

Mookie agrees to take all necessary steps to make the film suitable for Japanese release

and to bear the costs and risks involved. 5.

Mookie agrees to have the film ready for release by 1 June 1990.

6.

Bo-Peep and Mookie acknowledge that the date of release of the film is an important

factor in its likely commercial success. Bo-Peep shall fix the date of release by giving notice in writing no later than 1 May 1990, and Mookie shall be obliged to release the film in Japan on the date so fixed. 7.

In order to enable Mookie to carry out its obligations under this agreement, Bo-Peep

agrees to deliver a master print of the film to Mookie within two weeks of the date of the signing of this agreement. Bo-Peep shall remain the owner of this master print. 8.

The sole purpose of this agreement is to enable both parties to profit financially from the

release of the film in Japan. Bo-Peep and Mookie are each to be entitled to one-half of the gross proceeds of such release. 9.

Bo-Peep shall be entitled to receive part of its share of the proceeds in advance. For this

purpose, Mookie agrees to pay to Bo-Peep the sum of $25,000 at each of the following times: Upon the signing of this agreement; Upon delivery of the master print; On 1 April, 1 May, and 1 June 1990. Payment of these amounts shall be made promptly when due.

Both parties signed the contract on 1 February 1990 at which time Mookie paid the first $25,000 instalment. Bo-Peep delivered a master print of the film on 13 February, but Mookie did not pay

the second $25,000 instalment until 17 February. The third instalment was paid 10 days late, and the fourth was not paid until 15 May. In the meantime Mookie, working from its Perth offices, engaged itself in the process of readying the film for distribution.

This included dubbing the film into Japanese, that is,

replacing the Australian language on the film's soundtrack so that the characters appeared to be speaking Japanese. Mookie chose this method in preference to written subtitles because dubbing was very much cheaper.

On 20 April, Mookie received a letter from Bo-Peep stating that Mookie had been consistently late with its payments and this could not continue to be tolerated. It also said that Bo-Peep wanted to release the film during the pre-Christmas season and therefore the date fixed for Japanese release was to be 20 December 1990.

Mookie, however, was having cash flow

problems and wanted to release the film as soon as possible after it was ready. Discussions ensued but Bo-Peep remained adamant. Nevertheless, Mookie notified Bo-Peep on 15 May that the film would be ready for release on 1 June and that firm arrangements had been made to exhibit it in Japanese cinemas from that date.

The next day, Mookie received a letter from Bo-Peep's solicitors stating that Bo-Peep was immediately withdrawing Mookie's Japanese distribution rights on the ground that Mookie had breached and/or repudiated the agreement. Straight-away, Mookie sought legal advice from you, informing you that in addition to the $100,000 which it had paid to Bo-Peep so far, it had also incurred $60,000 in dubbing and other distribution expenses. Furthermore, in 1989, Mookie had borrowed from the bank a large amount of money secured by mortgage over its business premises. The increased interest charges of recent times had put Mookie considerably in arrears in its loan repayments and Mookie had been counting on the proceeds of the film's early release to avoid losing its premises and probable bankruptcy.

QUESTION ONE (70 marks) Advise Mookie as to its rights and liabilities.

QUESTION 2: TIM, LANCY AND ANDREW Andrew, or Lancy as he was known to his friends, is selling his car. He figures he is getting a bit old for the little Mazda convertible and he wants to by a more mature person’s car. His wife and kids agree. Andrew is a mature law student and as such he knows quite a few young people who might be interested in his car. He has told one of his younger classmates about it, and young Tim is quite interested. Andrew described the car in glowing terms. “Tim,” he said “It’s a real beauty. Fire engine red, will do 150 miles an hour, yet wonderfully economical. It does 40 kilometres to the litre city driving, even better out on the highway. And Tim, mate, it will really pull the chicks.”

Tim needs a car as taking a bus to uni is not working out; all up he is spending three hours a day on a bus. He can afford the car as his grandmother left him a small sum of money, but otherwise he has only student allowance to live on. The good side of that is that he stays slim; the downside is that he does not have much money to spend on petrol. He figures the 150 miles an hour is not so important; the idea frightens him. Really though, it is the idea of pulling chicks that does it. Despite being an HD law student, he is a bit shy and has never had a girlfriend. He cannot figure out why that is, but he can see that a hot car could make all the difference. Tim bought the car, handing over the whole $8,000.00 dollars his grandmother had left him. He has a receipt, as follows: Paid by Tim to Andrew the sum of $8,000.00 for Mazda MX 5, licence no. Hot-Stuff7. As is where is. Tim bought the car on a Friday afternoon. That evening he drove into Fremantle and did bog laps, stopping each time he saw a single woman so that he could yell ‘Jump on in baby”. By the end of the night he had been slapped in the face on three occasions, been laughed at 12 times and been told to xxxx off in more ways than he thought were possible. He floored it on the way home and found that the car did 100 kilometres an hour, maximum. He received a speeding ticket for doing 95k in a 60k zone and, to top it all off, ran out of petrol. He had put 10 litres in on buying the car and driving a total of 70kilometers had used up all his fuel. Tim fronted Lancy on Monday in class. He was furious. Lancy just laughed at him, and said “You got a decent car that will get you to and from uni and that is what you wanted. It’s not my problem if you are clueless about women and the words ‘as is where is’ have meanings. You are not getting your money back.”

Assume Tim has asked for your advice. What would he want to know? How would you work it out? What test would you apply as you go? What are the terms of this contract?

How do you classify each term? Would it make any difference to your answer if: Lancy was a mechanic? Tim was a mechanic and Lancy was not? The receipt said “The car is sold on an as is where is basis and no warranty is give as to its condition?”

Explain why each change may affect your advice.

QUESTION 3: DALKEITH MANSION QUESTION Otto owns a derelict property in Dalkeith. His plan is to demolish the existing house and replace it with a fashionable mansion. He engaged Wanda, a licenced builder, to do the work. The contract was signed on 15 January 2001. The cost is stated to be $150,000, allocated as follows demolition of existing building $25,000, equipment and materials $50,000, labour $75,000. The contract states that the work is to be completed by 15 June 2001, at which time the full $150,000 is to be paid. The contract states that the work on site is to commence on 16 February, that the demolition is to be finished by 28 March, and that "it is an important condition of this contract that no work is to be carried out on site before 8am or after 6pm."

Otto wished to have the house ready in order that he may hold a lavish party for his son's wedding on Mid July. Content in the fact that Wanda had contractually agreed to have the house completed by 15 June, he booked and paid for caterers , a jazz band and various other sundry matters such as hiring marquees and sound systems to be set up in the house and its( by then) manicured grounds.

Wanda commenced the demolition on 30 March and finished that stage on 14 April. Otto, who lives nearby, was always aware of what was or was not going on, but being rather a meek soul said nothing to Wanda about the delays, other than to seek assurances from her that the new building would be ready on time, assurances that Wanda unhesitatingly gave him each time he asked. In late May, Otto began receiving telephone calls from residents near the Dalkeith site complaining about the late hours of building work that sometimes went on until 2am. Otto mentioned this to Wanda when he next spoke to her but told her that some people will complain about anything and not to worry. Lately however the complaints have been increasing and on 30 May he received a letter from a solicitor for one of the residents which threatened legal action unless Otto took steps to prevent construction work from being carried out at such unreasonable hours. A bit worried, he immediately drove over to the site to speak to Wanda about this. As it turned out this was the first time that Otto had been to the site since mid April, and he was flabbergasted to discover that the house was only half completed.

Otto and Wanda had a fight about the delay- the upshot of which was that Otto said that he had had enough of the complaints about the late night work and that if she could not complete the work on time, he would find someone else who would. Wanda and her workers walked off the job in a huff.

The next week torrential rains caused the half completed house to slide down the block toward the river, effectively destroying it.

Otto comes to see you in despair. Advise him of his position:

A) as regards Wanda B) as regards the contracts he has made about the upcoming party

QUESTION 4: DENMARK CAR HIRE QUESTION Ezra runs a catering business in Perth. He also has an office in Denmark which caters for the southwest market. Ezra’s business caters for small dinner parties and birthdays. On January 30 Ezra is catering for a large Community Arts function in Denmark with over 400 guests. This is the first time he has catered for such a large party. He is hoping that the function goes well as Community Arts have told him that they will sign a contract with him for 5 further events if this one is successful. The current contract is worth $10,000 to him and catering 5 further events would be worth $50,000 to him.

Ezra needs to be in Denmark on January 30 to coordinate the function. Unfortunately, his car is at the panel beaters. He phones “Fred’s Car Hire” to enquire about rates.

Jenny, the

receptionist, tells him:

“You can hire a new Toyota Corolla for $25 per day and you will need to pay an additional amount for every kilometre travelled outside the metropolitan area.”

Ezra replies: “The amount is fine. Can you guarantee that a car will definitely be available on January 29? I have a catering function on January 30 in Denmark and I have to be there. Jenny assures him that the car will be available.

They agree that Ezra will hire a car on January

29 and the car hire company sends a confirmation email that they will provide a car on that day. They also send Ezra a contract. Ezra signs and returns the contract the next day. He notes on the contract that he needs the car on January 29 to coordinate a catering function.

On January 29 Ezra arrives at the Car Hire Company. Jenny tells him: “I am sorry, but we don’t have a car for you after all”. Ezra is furious. He tries to get a plane ticket but the evening flight is full and the flight the next day will not get him to Denmark on time. He also phones around other car hire companies but there are no cars available. He tells Jenny that the Company is in breach of their agreement and that he will sue them for his losses.

Ezra contacts the law firm where you are undertaking a vacation clerkship. The managing partner tells you that the Car Hire company has breached their contract with Ezra and asks you to provide him with advice on the damages that Ezra may claim from “Fred’s Car Hire”.

Remember that in your advice you need to clearly set out the law and apply it to the facts that you have been given. Make sure you refer to case law in your answer. Use the IRAC method to help you structure your answer.

QUESTION 5: DUNSBOUROUGH HOUSE Natalie has been having a ongoing discussion with Peter about his house in Dunsbourough. Peter bought the house during the boom but now owes more on it than it is worth and he wants to cut his losses and sell it. He has decided to do so without an agent to save money, and he knew that his wife’s sister, Natalie, had recently won a large sum of money on lotto and was looking to invest.

He approached her about the house, explaining that while it had come down in value it was sure to go back up again in the ongoing commodities boom. Lots of cashed up miners were buying down south and working fly in fly out from Busselton airport.

Natalie was interested from the start. She is very close to her sister Pam and she discussed it with her. Pam told her that unless she and Peter could sell the house the bank was likely to foreclose and in such circumstances they would have to sell their own home to meet the shortfall on what they owed. This distressed Natalie and she decided to drive down and have a look.

She did, and liked the house a great deal. It had tenants in it, which was good, and it was directly across from a lovely wooded area. Peter met her on site, and showed her through the house (the tenants were away for the day but they were obviously people who were keeping the property in good condition). Peter said that they had been there when he bought and had never failed to pay rent on time. He said that good secure tenants were very important in an investment buy and the current tenants intended to keep the house as long as they could. He commented on the bush across the road, saying that it was nice to have a bush outlook and it was getting to be a rare thing.

The price was right, and so Natalie signed a standard form purchase of land contract. She did not need bank finance, but she did make settlement conditional on a white ant report and a structural engineer’s report that gave the house a sound rating. The white ant people did the inspection the next day, reporting that there was no sign of current white ant activity. There was trouble getting an engineer. The one they found could not do the report for two months. Peter said that he could not wait that long but he assured her that the house was sound. Natalie agreed to settle anyway and did so, paying $750,000.00 for the house.

Two months later she received a call from the tenants. A developer had started clearing across the road, and had flattened the bush. The earthworks had caused a lot of dust and dirt and were going to go on for some time. They explained that they did not wish to live with that and as they were not on a lease but just a periodic tenancy they were giving notice and would be out at the end of the month. Natalie was quite distressed. She was more distressed when the engineer’s report came it, it said that the roof structure was unsound because of termite damage. The report said the damage was about a year old and the termite nest had been eradicated back then but the damage that had been caused needed urgent rectification as there was a risk that the roof could collapse. The report estimated repairs to be in the area of $50,000.00.

Natalie had the roof repaired but cannot find tenants as the building and other works across the road are very unattractive. So far the house has been without a tenant for 3 months. Peter is very embarrassed but says that there is nothing he can do about it as it was an honest sale and it is her problem. Natalie has come to you for advice.

QUESTION 6: GYM QUESTION Tony has finally joined the gym. Years of being stuck in front of his computer at SBM Legal have really done him some damage. His once slim 70 kilo frame now sags in his chair at 110 kilos. He has been meaning to do something about it for years and now he has. Driving home last Friday he saw a sign outside a new building. “Now open, Fataway Gym, Best Gym in WA, Cheapest Rates, and Weight Loss Guarantee with our special programs!”

He joined, paying $1200.00 for a one year membership and another $500.00 for twenty sessions with a personal trainer.

He attended his first session on Saturday. The gym is very sparsely equipped, and there are so many people in attendance that he has to wait 10 minutes for any piece of equipment. His personal trainer certainly has plenty of muscle, but does not speak English very well and does not really do much but pose in front of the mirror.

He has shown his girlfriend the special program. She is a nutritionist and has told him that he will certainly lose weight. In fact those exercises combined with the diet they have provided, will probably kill him. She reckons he will be down to skeleton within about two months.

To make matters worse his workmate Stan has also joined a gym. He says it is great, well equipped and with good trainers. He paid $600.00 for the year.

Tony has come to you asking if he can get out of the contract and get his money back. What is your advice to him?

QUESTION 7: KELLY MISREPRESENTATION Kelly has bought her first home. She bought a house and land package through Malbuilders Pty Ltd. She saw the sign for the development when she was out visiting a friend. It read House and Land for $250K, free landscaping and fence. The sign gave the selling agent’s details as Real Estate Magicians and she went in to see them the next day. She signed up on the spot after the very nice agent confirmed that the house came with carpets, white goods, landscaping and fencing. Kelly took some photos of the block, and the sign was very visible in the photographs.

Building was delayed, and as she had arranged to give up her flat on the day the house was supposed to be finished she wound up on a friend’s couch for a month. The estate agent was sympathetic but pointed to a clause in the contract that said no guarantee as to the finish date or anything else.

She finally got the call to say it was ready. She rushed straight over but was devastated; the little house was surrounded by sand and had no fence. The real estate agent was apologetic and said he would chase it up with the builder developer. He called her later to say that they builder developer was refusing to do the landscaping and fence and that the contract did not mention those items so that there was nothing the agent could do.

Kelly phoned the builder and was told that they did not put up the sign, that was the real estate agent and as far as the builder was concerned she could take it up with them.

Kelly is in your office in tears. Explain her rights and remedies.

QUESTION 8: MSLS CONTRACT NOTES Shazza is selling copies of her Contract no...