Supplementary Exam - Contracts PDF

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MACQUARIE LAW SCHOOL

LAWS1200 CONTRACTS SUPPLEMENTARY EXAMINATION – Session 2, 2020 Due: 4.15 pm Tuesday 24 November 2020

This exam will be marked out of 100 but represents 40% of the final mark for the unit. Answers to the examination questions must be written in the order in which the questions appear in the examination paper. The total word count should not exceed 2,000 words (excluding case names, citations and footnotes). Students are to upload their typed response in one single Word document at the ‘Take Home Exam’ link in iLearn. Students may submit their examination response in draft if they wish. This is in anticipation of technical upload problems. Each submission will override previous drafts, but the final submission must be uploaded before the expiration of the exam time. In preparing and submitting their answers to the examination questions, students are not permitted to discuss the examination questions and answers, or in any other way collaborate, with other students.

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ANSWER ANY FOUR OF THE FOLLOWING SIX QUESTIONS

QUESTION 1 [10 MARKS] Farouk and his wife have a lease over premises in the Shoparama centre, in which they run a Middle Eastern grocery and spice supermarket. Although their knowledge of English is not very good, they are the directors of Farouk Pty Ltd, a small family company which holds the lease on the premises. One of the terms of the lease is that their supermarket would be the only shop in the centre to be allowed to sell a wide range of Middle Eastern products. Business has been fine, but problems start as the time for renewal of the lease approaches. Farouk notices that the large food retailer Ilda in the shopping centre has introduced a comprehensive range of spices and other products targeted at the Middle Eastern market. Farouk complains to Sammy, the centre manager, on several occasions, but his response is: “Don’t make any trouble because head office won’t renew your lease.” He reminds Farouk that he has been late with rental payments on a few occasions. One day Sammy comes to the fruit shop before opening hours with a security guard. He shows Farouk and his wife a large envelope and says: “We’ve got the new lease. The Middle Eastern goods clause is out. Also, the rent is up 25%. Just sign it today and everything will be ok. It has to be returned by this afternoon or you will have to go somewhere else. Take it or leave it. Sorry.” When Farouk complains, Sammy replies: “If you don’t sign this new lease, Shoparama will throw you out.” Farouk cries at him “Not fair! No good!” But then the security guard steps in, grabs Farouk by the collar and slams the envelope onto the counter as he and Sammy leave the premises. Farouk and his wife are upset but reluctantly sign the lease. After a few weeks, Farouk notices a drop in business, especially among his Middle Eastern customers. The rent payments have become unmanageable and the couple is afraid their business will collapse. Advise Farouk and his wife whether they would be able to take any action to set aside their renewed lease. (Refer to general law principles only).

QUESTION 2 [10 MARKS] Martha and her husband Arthur sign a contract to sell their two acre property to Fritz for $750,000. Fritz pays $75,000 to their agent by way of deposit. One of the terms of the contract is that settlement will take place after 12 weeks in order to give Fritz time to organise his finance. This is because Fritz has complicated financial holdings through overseas managed funds and needs a longer period of time to settle. Two days before the settlement date, Fritz rings Martha and asks for more time. He says one of the trustees of an overseas company in which he has shares has failed to organise part of the settlement funds on time because he was ill. Martha and Arthur reluctantly agree to give Fritz

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extra time. Their solicitor then serves Fritz with a notice to complete. The notice sets a new time for settlement in 28 days with ‘time of the essence’. On the day before the new settlement date, Fritz again rings Martha and asks for more time because an amount of money he was expecting to come from one of his investments in the Cayman Islands did not come through on time. Martha speaks with her solicitor who advises her not to agree. The solicitor then attends the scheduled settlement time but no one attends on behalf of Fritz. The solicitor waits for 10 minutes and then leaves. Martha and Arthur terminate the contract and claim the deposit. Fritz threatens to take them to court. Advise Martha and Arthur about their prospects for claiming the deposit.

QUESTION 3 [10 MARKS] Section 15 of the Flame Retardants (Retailers) Act (a fictitious statute) provides as follows: (a) Any person who sells any flame retardant materials as part of their business shall at the time of sale supply the purchaser with a statement in writing setting out the information stipulated in Schedule I of this Act. (b) Any person who fails to comply with sub-section (a) shall be liable to a penalty of $1,000. Flintstone, a retailer of industrial building products, contracts to sell an industrial amount of retardant materials for $5,000 to Redhead, who agrees to pay for it within seven days of the date of contract. At the time of the sale, no statement of the type required by s 15(a) of the Flame Retardants (Retailers) Act is given by Flintstone. On the due date for payment of the purchase price, Redhead refuses to make the payment and demands that the sale be cancelled because Flintstone ‘broke the law’. Flintstone seeks your advice as to whether Redhead could avoid his obligations under the contract because of the provisions of the Act.

QUESTION 4 [10 MARKS] Don agrees to buy a house from Lucy for $750,000. Don and Lucy want to save money and neither of them employs a solicitor. Instead, Lucy buys a standard form Sale of Land Contract from her local legal stationer and fills in the blanks on the front of the contract. Both parties sign the contract and Don pays the 10% deposit. One of the standard clauses in the contract states: This written contract represents the entire agreement between the parties and no other terms and conditions are enforceable outside of this contract. The house is located in a very bushy area of Sydney and Don asks Lucy, prior to signing the contract, whether the property is affected by termites. Lucy says ‘Don’t worry, there are no termites in the property’. Don thinks about putting this in the contract but later forgets about it. He goes ahead and signs the contract.

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About a week after Don signs the contract, he remembers about the termites and sends Lucy an email reminding her about the termites and that it should have been part of the contract. Lucy does not answer the letter. Don has a pest inspection of the house done and the report comes back stating that parts of the house are riddled with termites and parts of the wooden frame need replacing. The report says it will cost $50,000 to fix the problem. On what basis could Don argue that Lucy’s statement is binding? (Refer to general law principles only).

QUESTION 5 [10 MARKS] Ricky took his hand-made and embroidered Gucci leather jacket and his wife’s Prada handbag for cleaning to Nikki, a well-known repairer and cleaner of luxury leather goods. Ricky was handed a docket which he placed in his wallet without reading. When he returned to collect the goods the following week, he discovered that his leather jacket was stained and his wife’s handbag was missing. The shop assistant recalled giving the handbag to another customer who had lost her docket. No explanation was offered for the stained jacket. Ricky was very angry and demanded compensation. Nikki refused, referring Ricky to a clause on the docket which read: “Nikki will not be liable for any loss or damage to any goods left for repair howsoever such loss or damage may be caused.” Nikki also pointed out that the same words were printed on a large sign on the wall. Ricky protested that he had never read either the sign or the docket. Ricky seeks your advice about whether Nikki can rely on the docket and the wall sign to avoid paying compensation for the lost handbag and the damaged jacket. (Refer to general law principles only).

QUESTION 6 [10 MARKS]

ANSWER ONLY ONE OF THE FOLLOWING FOUR QUESTIONS a) “When you buy a business, it is almost impossible to stop the seller from competing against you and taking back all their customers. If you try to stop them, courts will say you were acting unreasonably and against competition. It’s a mug’s game.” Address this comment in relation to the law on restraining trade in contractual terms. How do NSW courts approach these issues today? [10 marks]

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b) Imagine that a young couple exchange contracts on a two-bedroom semi-detached cottage in Sydney’s inner west. They then discover from neighbours that the house ‘has had a spooky history’. One neighbour says that mysterious events took place some 50 years earlier when two old women living in the house suddenly disappeared. One of them supposedly belonged to a ‘witch’s coven’ in the beatnik era. The couple is fearful of proceeding with the purchase. When they confront the vendor’s agent, he laughs it off as ‘rumours for airheads’. He also tells them the property was featured in a TV program in the 90s about ‘haunted houses’, which was discredited in several newspaper articles. From your knowledge of Contract law, on what basis could the young couple argue for their purchase to be set aside because they were not told about the ‘haunted house’ and its reputation? [10 marks] (Refer only to statute)

OR c) “Contracts are basically exchanged promises, and there would be commercial chaos without Contract law. End of story. So-called contract theories are a waste of time.” To what extent do you agree with this comment in light of analytical and normative theories of contract you have come across this semester? [10 marks]

OR d) “It’s a great shame that today all contracts, even between business people, are subjected to ever-increasing rules and regulations. The well-known freedom of contract that has been around since at least the 1800s is finally dead.” To what extent do you agree with this comment? Illustrate your answer with aspects of Contract law you have studied this semester. [10 marks]

END OF EXAMINATION

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