Commercial Law: Case Scenarios

This document discusses three different case scenarios in commercial law. The first scenario deals with a family lottery agreement, the second scenario deals with an exemption clause in a contract, and the third scenario deals with substantial performance in a contract. The document explains the legal principles and their application in each scenario. It also provides references for further reading.

Commercial Law
Commercial Law
Author Name(s)
Institution
Author Note

COMMERCIAL LAW 1
Commercial Law: Case Scenarios
Scenario 1: Mike and Suzanne have a daughter (Michelle) and a son (Jack).
Material Facts:
1. Mike and Suzanne are the parents to Michelle and Jack.
2. The family has a tradition where they play contribute money to play a lottery
syndicate.
3. Jack on one day purchased the lottery and won 1 million Dollar.
4. He want to take all the money and leave his own life.
Issues
Were the family members arrangements for a lottery made with the intention to create
legal relations?
Legal Principles
The basic elements for a contract are an agreement made of an offer and acceptance,
consideration, intention to create a legal relationship, and capacity to make an agreement.1
Intention to create a legal relationship can be express or implied. When it is not expressly stated
in the agreement, the court takes an objective approach in finding whether the parties intended to
have binding arrangements.2 Firstly, the court analyzes the context of the agreement. If the
agreement originates from a commercial context, the court presumes that the parties intended to
make binding arrangements.3 As discussed, there is an exception to this principle, particularly
where parties have expressly stated that they never intended to make a legally binding
relationship. Where the agreement originates from a family or social context, the court assumes
1 Paul Latimer, Australian Business Law 2012 (CCH Australia Limited, 2012).
2 Dilan Thampapillai et al, Australian Commercial Law (Cambridge University Press, 2015).
3 Clive Turner and John Trone, Australian Commercial Law (Thomson Reuters Australia,
Limited, 32nd ed, 2018).

COMMERCIAL LAW 2
that the parties never intended to make legally binding arrangements.4 However, courts find
intention to create legal relation in domestic or social agreements that involve matters of
financial loss or gain.5
Application;
On analysis, Mike, Suzanne, Michelle, and Jack were all family members. While their
agreement has offer, acceptance, and consideration, the problem arises in finding the intention of
the parties. When dealing with such case, Courts classify the agreements as those originating
from commercial or social and domestic context.6 Courts usually find no intention to create legal
relations in domestic or social agreement. For instance, Balfour v Balfour, the declined to
enforce an agreement between a husband and a wife terming it as a domestic arrangement.7 In
considering the case of Jack’s family, the court will have to analyze their lottery agreement to see
whether it was one of the domestic arrangements. As can be seen, it is a fact that they had a
family arrangement to contribute to the lottery which was more of a financial arrangement.
Where a domestic arrangement involves matters of financial loss or gain, the court
usually finds an intention to create legal relations in such agreements.8 For example, in
Robertson v. Anderson, both the defendant and claimant had an agreement to contribute to a
bingo price and share prize once they win.9 The Scottish Court in this case order the defendant to
share the bingo prize.10 Another situation more similar to the case of Jack family is the case of
4 Ewan McKendrick and Qiao Liu, Contract Law: Australian Edition (Macmillan International
Higher Education, 2015).
5 John W Carter, Cases and Materials on Contract Law in Australia (LexisNexis Butterworths,
6th ed, 2011).
6 Latimer, above n 1.
7 Balfour v Balfour (1919) 571 2 KB.
8 Jeannie Marie Paterson, Andrew Robertson and Arlen Duke, Principles of Contract Law
(Thomson Reuters (Professional) Australia Limited, 5th ed, 2016).
9 Robertson v Anderson (1897) 165 US.
10 Ibid.

COMMERCIAL LAW 3
Simpkins v Pays.11 In the case, the defendant and claimant contributed money to play a lottery.
However, when they won, the defendant refused to share. The Court found that the agreement to
share the lottery price was enforceable.12 The examples fit the case of Jack’s family. Though they
had a domestic arrangement for contributing to lottery and sharing the prize, the financial
arrangements make it more of a legal agreement. Therefore, just like the case of Simpkins v Pays,
the court will be likely to find the intention of the parties to create a legal relationship.
Conclusion
The court will be likely to order Jack to share with the family as agreed. This is because,
despite the fact that it was a domestic agreement, it involved financial gain and loss hence there
was an intention to create legal relation.
Scenario 2: Monika AND Mechanic Shop
Materia Facts;
1. Monika went to get a service for her car at a mechanic shop
2. She got in to a contract with the shop.
3. The contract has a provision that the mechanic shop was not going to bear the
liabilities in case of loss or damage that occurred during the service.
4. A member of mechanic shop’s staff dismantled Monica’s car thinking it was one of
those scheduled for dismantling.
5. Monika wants to sue the shop for compensation
Issues;
Whether the exemption clause in the party’s contract included even the actions of the
mechanic shop employee.
11 Simpkins v Pays (1955) 975 WLR 1.
12 Ibid.

COMMERCIAL LAW 4
Legal Principles
Exclusion clauses are express statements that aim to exclude one of the party’s liabilities
in a contract.13 The first requirement for the validity of exclusion clauses requires its incorporated
into the contract.14 The second principle is that the person relying on the clause must bring it to
the attention of the other party.15 Thirdly, there is a need for clarity and unambiguity in the
clause. The clause must be easier to be understood by any reasonable person given the parties’
context, and it must not be vague. Lastly, the clause must comply with the Australian Consumer
Law (ACL).16
Application
On analysis, the court will be dealing with a situation of determining whether the clause
in question was valid. The validity of and exclusion clause requires its incorporation into the
contract. Incorporation generally requires bringing the attention of the other party to the clause.
In signed contracts, the law assumes that there was constructive notice. This is evident in the
case of L’Estrange v Graucob a where the court ruled that the clause was valid agreement.17 This
ruling declined the claimant reasoning that he did not read the document before signing.18 In
evaluating this principle with the case of Monika, she cannot deny the incorporation since a party
that signs a document agrees to be bound by all the terms.
The second requirement is that the clause must be clear with no ambiguity. Where a
clause creates doubt, that clause would be invalid. A closely related to this rationale is that a
clause cannot purport to exclude even the situations that were not covered by its construct.
13 McKendrick and Liu, above n 4.
14 Thampapillai et al, above n 2.
15 Paterson, Robertson and Duke, above n 8.
16 McKendrick and Liu, above n 4.
17 L’Estrange v F Graucob Ltd (1934) 394 2 KB.
18 Ibid.

COMMERCIAL LAW 5
Authority for this situation can be derived from Andrews Bros Ltd v Singer & Co.19 In this case,
the court prevented the defendant from including liabilities that were not mentioned in the
exclusion clause.20 This point applied very well in the case of Monika. The clause states that “the
mechanic shop was not liable for loss or damage caused during the service.” In this case, it is
clear that the mechanic shop was excluding liabilities for loss that occurs at the time when it was
conducting the repairs but not in the other actions of its business. Dismantling other cars was not
part of Monika’s service.
Lastly, a clause cannot contradict statutory provisions. In Australia, Schedule 2 of the
Consumer and Competition Act prevents inclusion of Unfair terms in the contract. Under section
25, the act continues to list some of the examples of unfair terms with one of them being any
term that tries to limit one party from vicarious liabilities caused by its agents.21 However, this
provision may not apply as there are no liabilities for negligence.
Conclusion
Monika would recover damages since the clause does not cover the course of action that
resulted in the damage of her car.
Scenario 3: Adelaide Super and Japanese Company
Material Facts;
1. Adelaide Super imports bread and biscuits from Japan to Australian market,
especially for school kids as part of their lunch pack.
2. Adelaide Super got into a contract with the Mitoshi, a Japanese Company for the
shipment of bread and biscuit from Kobe, Japan to Adelaide, Australia.
19 Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd (1934) 17 1 KB.
20 Ibid.
21 Competition and Consumer Act 2010 25(i).

COMMERCIAL LAW 6
3. On arrival at Adelaide, most of the biscuits and bread were broken but still edible.
4. The cause of breakages was the terrible weather on Mitoshi’s way.
5. Whether Adelaide Super can terminate the contract with Mitoshi?
Scenario 2
6. On the way, Mitoshi’s ship was hijacked.
7. When the ship was finally released and reached Adelaide, nothing on board was
edible.
Issues
The issue in this scenario is whether a party can terminate a contract based on substantial
performance.
Legal Principles;
The concept of substantial performance deals with situations where one party
substantially carries all the obligations but unintentionally fails to render complete performance.
In such circumstances, the party that rendered substantial performance can still recover the price
of the contract less the estimated amount that would have made the performance complete.22
Generally, for there to be a substantial performance, the performance given should be able to
provide the same benefit as that was promised.23 Either, the alleged substantial performance
should not have a significant deviation from the one contracted. Above all, substantial
performance should have been rendered in good faith.
Application
On analysis, Mitoshi shipped the goods as agreed, but the pieces of bread and biscuits
were broken due to bad weather, but they were still edible. In law, a failure to perform as agreed
22 McKendrick and Liu, above n 4.
23 Ibid.

COMMERCIAL LAW 7
in the contract amounts to a breach where the appropriate remedy is awarded to the innocent
party.24 However, for the Mitoshi situation, the was performance only that it was not complete
performance. Such circumstances require the innocent party (Adelaide) to pay for substantial
performance but not terminating the entire contract. This rationale was applied in Hoenig v.
Isaacs where the court found that even though the claimant did not render complete
performance, they were still entitled to a payment of the substantial performance they provided.25
The court ordered the defendant to pay them the contract price but subtract the amount for the
defects.26 The situation of Mitoshi is somewhat the same since they shipped the goods as agreed,
the only problem is that the biscuits and bread were broken. The main question is has the purpose
of the contract been destroyed? That is, can the kids still eat the bread and biscuits? What is the
cost of biscuits that could not be eaten due to severity of the breakages? Therefore, Adelaide
were supposed to pay the contract price less the amount of the biscuits and pieces of bread which
was completely a waste.
In the second scenario, the ship was hijacked and all the goods all were not edible. In this
circumstance, there is no performance. When an event destroys the subject matter of the contract,
both parties are relieved from their performances under the doctrine of frustration. For instance,
in Taylor v Caldwell, the Court ruled the parties’ obligations could not be performed since the
fired destroyed the hall which was the subject matter of the contract.27 In similar circumstances,
the contract was frustrated and Adelaide can terminate the contract but cannot sue for damages.
24 Photo Production Ltd v Securicor Transport Ltd (1980) 827 AC.
25 Hoenig v Isaacs (1952) 1952 ER 2.
26 Ibid.
27 Taylor v Caldwell (1863) 1863 Eng Rep 122.

COMMERCIAL LAW 8
Conclusion
In the first scenario, Adelaide will receive the payment for the substantial performance
they provided. In the second scenario, the contract was frustrated thus discharging the
performance of either of the parties.

COMMERCIAL LAW 9
References
Carter, John W, Cases and Materials on Contract Law in Australia (LexisNexis Butterworths,
6th ed, 2011)
Latimer, Paul, Australian Business Law 2012 (CCH Australia Limited, 2012)
McKendrick, Ewan and Qiao Liu, Contract Law: Australian Edition (Macmillan International
Higher Education, 2015)
Paterson, Jeannie Marie, Andrew Robertson and Arlen Duke, Principles of Contract Law
(Thomson Reuters (Professional) Australia Limited, 5th ed, 2016)
Thampapillai, Dilan et al, Australian Commercial Law (Cambridge University Press, 2015)
Turner, Clive and John Trone, Australian Commercial Law (Thomson Reuters Australia,
Limited, 32nd ed, 2018)
Andrews Bros (Bournemouth) Ltd v Singer & Co Ltd (1934) 17 1 KB
Balfour v Balfour (1919) 571 2 KB
Bolton v Mahadeva (1972) 1972 WLR 1
Hoenig v Isaacs (1952) 1952 ER 2
L’Estrange v F Graucob Ltd (1934) 394 2 KB
Photo Production Ltd v Securicor Transport Ltd (1980) 827 AC
Robertson v Anderson (1897) 165 US
Simpkins v Pays (1955) 975 WLR 1
Taylor v Caldwell (1863) 1863 Eng Rep 122
Competition and Consumer Act 2010