Please see below some practice questions, please note that they are only practice questions and not the same format as your final exam. Some of these questions are from the prescribed textbook, Andy Gibson, Business Law (10th edition) Contracts Law Drum’s cow was offered for sale at auction. One of the clauses contained in the auction catalogue stated that ‘no animal is … sold with a warranty unless specifically mentioned at the time of offering, and no warranty so given shall have any legal effect or force unless the terms thereof appear on the purchaser’s account’. Bidding was slow because of the cow’s poor appearance. In a bid to get things moving, Drum said: ‘There is nothing wrong with her … I will guarantee her in every respect.’ Harp, on hearing this, successfully bid for the cow, only to find when he got her home that she had TB. She died shortly thereafter. Will the warranty in the catalogue protect Drum if Harp brings an action against him for compensation? Consumer Law In 2015 Anna, a successful property developer, needed finance for a new property development on the Gold Coast. She approached his bank and was told by the branch manager of the bank that a loan could be arranged in a foreign currency at a low rate of interest if she was interested. At a later meeting, another bank officer spoke about the advantages of such a loan in terms of it being good business for Anna to borrow offshore: it was low in risk, and it wasn’t worth hedging such a loan against the Australian dollar, which was strong at that time. As a result of these conversations, Anna borrowed the equivalent of A$10 million in US dollars. At the time of the loan, the exchange rate for the Australian dollar against the US dollar was A$1.12. Since then, the value of the Australian dollar has fallen from A$1.12 to A$0.79 to the US dollar, significantly increasing Anna’s debt to the bank. Has Anna any recourse against the bank under the ACL? Agency and Business Entities Elen was a solicitor who also owned a company which carried out property development. The company was known as Northmead Real Estate Developments Pty Ltd. Elen employed a paralegal, Farah, who owned a rival property development company known as, Smith Developments Pty Ltd. Elen trusted that Farah would keep matters confidential and only work in her capacity as a paralegal. Elen also appointed Frank as the manager of Northmead Real Estate. Frank and Farah became good friends. Frank would often inform Farah of valuable properties that Northmead Real Estate was interested in purchasing. Frank conveyed this information to Farah without the knowledge and consent of Elen. Farah then used that information for the benefit of her own company, Smith Developments, by purchasing those properties and consequently, diverting the opportunities away from Northmead Real Estate. For this reason, Northmead Real Estate Development’s business was negatively impacted because it was in direct competition with Smith Developments. Can Elen sue Farah or Frank, and if so, what remedies are available to Elen? Question 4: Business Entities – Ongoing Legal Responsibilities Hanan and Wang want to purchase a small food truck business. They do not have much business experience and want a simple structure to their business that is also confidential. You are a business advisor and they come to you for advice. Advise them on which business structure would be most suitable for them, including advice on the advantages and disadvantages of the business structure most suitable for them. Please note that this is a model answer only from Andy Gibson, Business Law (10th edition)- do not copy/paste or use this answer as a template for an exam as it is only a model answer. This question can also be approached in other ways. Contracts Law Drum’s cow was offered for sale at auction. One of the clauses contained in the auction catalogue stated that ‘no animal is … sold with a warranty unless specifically mentioned at the time of offering, and no warranty so given shall have any legal effect or force unless the terms thereof appear on the purchaser’s account’. Bidding was slow because of the cow’s poor appearance. In a bid to get things moving, Drum said: ‘There is nothing wrong with her … I will guarantee her in every respect.’ Harp, on hearing this, successfully bid for the cow, only to find when he got her home that she had TB. She died shortly thereafter. Will the warranty in the catalogue protect Drum if Harp brings an action against him for compensation? Answer Issue This question is concerned with the operation of an exclusion clause in a contract, and the effect of the making of an express oral warranty that is inconsistent with such an exclusion clause. Has the oral statement created contractual obligations, or is it a mere representation made in the course of negotiations by one of the parties, and which is not intended by that party to be legally binding and which a reasonable person would understand to have been so intended? There is also the issue of whether a statement, taking the form of a representation, made before the making of the contract, can or will not end up embodied in the contract as a term thereof. Rule Whether or not a statement is a mere representation or a term of the contract will depend on the circumstances surrounding the transaction. Where the terms of an agreement are contained in a contract, as they are here, there is a presumption that the document contains all of the terms of the agreement. Although extrinsic evidence is not admissible to add to or vary the terms of a written instrument, evidence may be admitted to show the existence of a collateral contract or warranty. For a collateral contract or warranty to be enforceable, two requirements must be satisfied. First, it must be shown that there is no inconsistency between the collateral contract or warranty and the main contract. An exception to this rule can be found where the collateral statement was to the effect that some express term of the contract was not going to be relied on, or that it will not be enforced by the representor—for example, a promise that an exclusion clause will not be enforced. This would have had the effect of making the collateral contract operate as a form of estoppel. If the inconsistency comes from the operation of an exclusion clause in the main contract, the collateral promise will override the exclusion clause because it is the very thing that induced the injured party to enter into the contract. See, for example, Mendelssohn v Normand Ltd [1969] 2 ALL ER 1215, where the court held that the exclusion clause did not apply, notwithstanding the inconsistency between the oral collateral contract and the main contract. The oral promise by the parking attendant that he would lock the car was what induced Mendelssohn to enter into a contract with Normand Ltd. The second requirement is that the main contract would not have been entered into in the absence of the earlier statement. It has to be established by the plaintiff that the main contract was made in consideration of the making of the promise in the collateral contract. J.J. Savage and Sons Pty Ltd v Blakney [1970] HCA 6 illustrates the importance of the promissory nature of the statement, and should be contrasted with statements that are more an expression of opinion or representational. Application From the information contained in the question, it is clear that the statement by Drum as to the condition of his heifer was intended to stimulate buyer interest in the animal as bidding was slow. Drum, as the seller, was in the best position to know the condition of his heifer. He has made a statement that there is nothing wrong with the animal to encourage buyers who may have been concerned with the poor appearance of the animal, and who may have been concerned about the effect of the exclusion clause. It appears that Harp has acted in reliance on this statement. Thus, it is possible to infer a collateral contract or warranty that will override the operation of the exclusion clause in the catalogue. This would give Harp the right to sue for damages for its breach, but not to a right to treat the main contract as repudiated (because it has not been breached). It is also worth considering whether the statements in the catalogue are embodied in the contract or whether they could be referred to as ‘mere representations’. Whether or not a statement does take effect as a term depends on whether the parties intended it to form a part of their agreement. One consideration in this respect is to consider the importance of the matter being raised in the statement. If the representation of one party covers a matter of significance to the other concerning the contract, such as Drum’s statement concerning the good condition of the heifer to encourage bidders to make offers where it is apparent that it will not sell otherwise at the auction, the courts will more readily infer that the representation was intended to become a term. Conclusion The statement by Drum as to the condition of the heifer, which looked in poor health, was what the plaintiff wanted to know before he made an offer that the fall of the hammer would turn into a contract, and the question of the condition of the animal was a ‘substantial’ element in the identity of the item for sale. If Harp could not succeed on the argument of a collateral contract, he could succeed on the argument that the statement as to the condition of the cow was an express term that formed part of the agreement, with the result that the contract was one of the sale of goods by the description ‘there is nothing wrong with her ... I will guarantee her in every respect’.
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