Sample/practice exam 2011, questions and answers - Part 1 (short answer questions) PDF

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Part 1 (short answer questions)...

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Practice Exam 2010 – 2011: Short Answer Practice Questions What is the consequence of a decision by a judge hearing a contract dispute that one of the significant terms of the contract is expressed in such a way that the judge cannot determine the true meaning of the term? If a statement is term of contract but can be interpreted more than one way, the courts have to determine the true intention of the parties. This is tested objectively as demonstrated in the case of CNW Oil (Australasia) Pty Ltd v Australian Occidental Pty Ltd. A term maybe uncertain or meaningless and the courts will attempt to uphold contract wherever possible. If term is uncertain the courts will cut the contract the uncertain term but this can only be done if the remainder of the contract makes sense without it as accomplished in the case of Fitzgerald v Masters. Sometimes a term is so uncertain the courts cannot give any meaning to the words, it the term is meaningless the courts will void the entire contract for uncertainty as demonstrated in the case of Scammel v Ouston where it was held that the contract was void for uncertainty as there were so many ‘hire-purchase terms’ they had no idea in determining what the parties agreed to. Explain briefly the legal rule known as the ‘Parol Evidence Rule’. What is the logical justification for this rule? The Parol Evidence Rule is where a contract is written and appears to be complete, verbal evidence that would add to, vary or contradict the written contract in any way, will not be permitted by the Court. This concept I demonstrated in the case of Mercantile Bank of Sydney v Taylor. The ratio decendi of parol evidence rule is that cases where the parties take trouble to reduce to writing the agreed terms of their contractual arrangements, there is a presumption that the written contract will contain all relevant matters and that any aspect of the arrangements that were not included in the writing should be taken into account. Explain briefly the distinction between a warranty in a contract and a condition in a contract. Why is this distinction important? Warranties deal with cosmetic, rather than structural or fundamental aspects of the transaction as demonstrated in the case of Bettini v Gye. It must be complied with otherwise there will be breach in contract. Conditions is the core root of the contract. It is a fundamental term or clause because if condition were taken from the contract, the contract would have a different meaning a shown in the case of Poussard v Spiers & Pond. The main distinction between the two terms is their importance. Warranties are least important a conditions is most important. This is important because of the remedies available for breach. Breach of condition will allow the party to reject the contract and sue for damages. For breach in warranties, damages are only available for remedy. Terms of a contract may be classified as conditions, warranties or intermediate terms. What is the relevance of the distinction between these various classifications of terms? The distinction between the terms of a contract are important because of available remedies for breach of contract. For breach of conditions, the innocent party may reject the contract and claim for damages. In breach of warranties, it entitle the innocent party to damage only. Because intermediate terms are not clarified as a condition or warranty, the innocent party can either reject the contract and claim damage or just claim damages, depending on the severity (brutality) of the breach. The distinction between terms can be demonstrated in the cases of Bettini v Gye and Poussard v Spiers & Pond. In Bettini v Gye, Bettini was in breach of warranty and the employer was not entitled to end the contract. In Poussard v Spiers & Pond, Madam Possard was in breach of condition and Spiers was entitled to ending the contract. Summarise briefly the presumptions applied by courts in deciding whether or not parties to an agreement intend legal obligations to flow from their arrangement.

There are two relevant presumptions applied by the court when testing for intention. Firstly, there are personal, domestic or social transactions where the course presumes the parties did not intend to be legally bound. See Balfour v Balfour, where the contact between a married couple was found to not be a binding contract as it was a domestic agreement. Secondly, there are business or commercial transactions where the court presumes parties intended to be legally bound. See Carlill v Carbolic Smoke Ball Co, where there was found to be intention, and therefore a contract, as the conditions were fulfilled and it was a business transaction. Define briefly a "condition precedent" and a "condition subsequent". Explain when they operate by giving an example of each. A condition precedent is a term in a contract that relate to external/outside events. The event must occur before the contract can operate. An example of when the condition precedent operate is when a clause making buyer’s performance conditional upon obtaining a necessary loan a demonstrated in the case of Pym v Campbell. A condition subsequent is term in relation to also an external/outside event. The occurrence of that event will bring an existing contract to end. An example of this is when sale of goods specifying the buyer they may return the item and obtain a refund if the product is unsatisfactory. This is demonstrated in the case of Head v Tattersall where the point was argued whether the fact the horse was injured while in custody of the buyer disadvantaged the conclusion of his right to return it. Although damages are the typical remedy for breach of contract under the common law, equity has developed two significant remedies which can apply in breach of contract cases. Explain the two equitable remedies. The first remedy of equitable remedies is specific performance which is a positive remedy. If a party of a valid contract is refusing to perform their legal obligations for no valid reason, the innocent party can seek for an order of specific performance of the contract by the other party. If the court is satisfied that the contract exists/valid and refusal to perform cannot be legally justified, the court will order the breaching party to perform their specific obligations. The second remedy is injunction which is a negative remedy. It is an order directing the defendant not to do something it has promised not to under contract or damage the subject matter of the contract. What is a “collateral contract”. How can a person seeking to rely upon a collateral contract prove the existence of consideration for the collateral promise, thus making it enforceable as collateral contract? Collateral contract is separate contract from the main contract. It’s a subsidiary contract that induces a person to enter into the main contract or depends on existence of main contract. It’s legally enforceable because it’s supported by consideration to enter into the main contract. The contract bypasses the problem of the parol evidence rule entirely because not arguing the written contract isn’t complete, arguing two separate contracts is. The identification of a collateral contract is illustrated in the case of De Lassalle v Guildford where it was held that the assurance was reflected as a separate collateral contract in relation to the main issue. Furthermore, when there is a written contract and the other is a verbal promise it is contractual. However, the verbal contract must be given prior to signing and entered into prior to the main contract, otherwise past consideration is not valid as demonstrated in the Eastwood v Kenyon case. The Oscar Chess v Williams case also justified that verbal contracts are classified as a term in the main contract. To prove collateral contract exists, there are two factors.

1) The collateral promise must be consistent with the terms of the main contract which lead to Consideration which is an act of signing making it contractual. This concept I best demonstrated in the case of Hoyts Pty Ltd v Spencer. 2) The promise must be the only reason the promisee enters into the main contract which is a ‘Motivational Link’ – Link between promise and signing of contract as demonstrated in the case of JJ Savage and Sons Pty Ltd v Blakney. What is the essential difference between a term of a contract and a misrepresentation? Why is this distinction important? A misrepresentation is a false statement made during negotiations that induces the person hearing it to enter into the contract. A term must be complied and differ by importance. Sometimes statements made during contract negotiations are considered terms. If not terms, they may alternatively be considered misrepresentations. This is held in the case of Oscar Chess v Williams as the plaintiff’s claim failed as William’s statement was not a term of the contract but a misrepresentation. The factors that prove this concept include, the objective of the parties, actual words used, proper inferences from known facts, whether the statement was reduced in writing and comparative skill and knowledge of the parties. Misrepresentation provides an equitable remedy for the innocent party, however it varies from remedies for breach of contract and is specified for the type of term that was breached such as conditions and warranties. In appropriate circumstances, a party to a contract may be able to avoid the contract by arguing “undue influence”. Explain what is meant by undue influence, and the circumstance in which it might apply. Undue influence examines the reality of agreement when some influence or pressure has played part of agreement. It occurs in the formation of a contract or other dealings for example gifts or transfers of property without acceptable consideration. There are two types of conditions of undue influence. Firstly, presumed undue influence occur where there is a fiduciary relationship between the parties. In the existence of this relationhip, the presumption arises that it has taken place. The onus is on the dominant/powerful party to prove that the weaker party was not unduely influence. This is demonstrated in the case of Johnson v Butress and Lloyd’s Bank Ltd v Bundy. Secondly, in actual undue influence if there is no special relationship, the victim of undue influence can till avoid the contract on proof of undue influence. The difference is that where there is actual undue influence, the onus is on the party claiming undue influence a shown in the case of Mutual Finance v John Wetton and Sons. Outline briefly the equitable remedies of specific performance and injunction. Explain the circumstances in which court may refuse to grant a decree (declaration) of specific performance of a contract but might award damages instead. The first remedy of equitable remedies is specific performance which is a positive remedy. If a party of a valid contract is refusing to perform their legal obligations for no valid reason, the innocent party can seek for an order of specific performance of the contract by the other party. If the court is satisfied that the contract exists/valid and refusal to perform cannot be legally justified, the court will order the breaching party to perform their specific obligations. The second remedy is injunction which is a negative remedy. It is an order directing the defendant not to do something it has promised not to under contract or damage the subject matter of the contract. Specific performance will not be awarded where damages would adequately compensate a plaintiff for a breach of contract. This I demonstrated in the case of JC Williamson Ltd v Lukey

where it was held that the doctrine could not apply specific performance as there was no available remedy. Specific performance will also not be rewarded where enforcement would require constant supervision by the courts or in contracts of personal service as applied in the case of Lumley v Wagner where it involved the issue of injunction against a singer to restrain them from signing for other theatres during term of contract. A person under the legal age of majority is said to be a “minor”. In what circumstances (if any) may a minor enter into a valid and legally enforceable contract? The minor may enter a legally enforceable contract based on two factors. The first is if the contract is in purchase of necessities. A necessary I defined as something without which the minor cannot exist such as basic food, shelter, clothing, medical and other important services in emergencies. This concept is demonstrated in the case of Chapple v Cooper where it was held that if a person orders a service that is required and suitable for their condition in time of sale and delivery, they’re liable unless the onus is on the party supplying the goods/services to prove they’re necessaries. In other words, whether something is necessary depends on minor’s ‘station in life.’ The second factor is their able to be in contract with educational or employment for the minor’s benefit such as apprenticeships (beneficial contract of service). Beneficial contracts of service are generally binding. This is shown in the case of Hamilton v Lethbridge where whether or not a man entered into contract while he was a minor could disaffirm (reverse the previous decision) the contract two years after he had come of age. What is the difference between `void' contracts and `voidable' contracts? Give an example of each. Void contracts are a nullity. They have never existed and never had any legal effect. For example, if a mistake is proven to have occurred, then the court will declare that the contract was void for mistake, that is, the contract never existed at all. Voidable contracts are formed through the wrongdoing of one of the parties. Voidable contracts are perfectly valid contracts and are effective until the wronged party takes action to avoid the contract by exercising their right to rescind the contract. If one party to a contract misrepresents an important detail, then the innocent party can avoid or rescind the contract. The contract then cannot be enforced by the guilty party, making it voidable....