University Legal Problem: Contract Law Analysis, Spr 2019

This document presents a comprehensive analysis of two contract law problems. The first problem examines the formation of a contract between an uncle and his nephew, focusing on the elements of offer, acceptance, and the intention to create legal relations, particularly within the context of a domestic agreement. It explores whether a valid contract was formed and if the nephew can claim payment based on his actions. The second problem delves into misrepresentation in contract law, analyzing four different scenarios involving the sale of a gemstone. It explores the different types of misrepresentation (fraudulent, negligent, and innocent) and the remedies available, such as rescission and damages. The analysis references relevant case law to support the arguments and conclusions for each scenario, providing a detailed legal framework for understanding the issues presented.

Running head: CONTRACT LAW
CONTRACT LAW
Name of the Student:
Name of the University:
Author Note:

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Question 1:
Issue:
The primary issue to be discussed in this case study is whether there is any valid contract
between Frank and Nick on the basis of which Nick can claim 1000 $ from Frank.
Rules:
Apart from agreement, consideration, capacity, another important element to be
considered in a valid contract is the presence of legal intention of the parties. The presence of an
intention can change an agreement into a legally enforceable contract (Adriaanse 2016). This
was seen in the judgment given in the case of Helmos Enterprises Pty Ltd v Jaylor Pty Ltd
[2005] NSWCA 235. Such element of intention is valid in case of commercial transactions.
However, in case of social and domestic kind of agreement, the parties usually do not have a
legal intention to create a contract and thus in such type of social and domestic kind of
agreement, the parties cannot enforce the contract against one another. There is a general
presumption that parties involved in social and domestic kind of agreement do not possess legal
intention as construed in the decision given in Balfour v Balfour [1919] 2 KB 571. But this
presumption can be ignored if contradicting evidence is found. Instances of contradicting
evidence are supported by an agreement in writing as seen in Errington v Errington Woods
[1952] 1 KB 290, when the parties have separated and departed from one other as observed in
decision of Merritt v Merritt [1970] 1 WLR 1211, or when such agreement involves the rights
and obligations of a third party as observed in Simpkins v Pays [1955] 1 WLR 975. Similar
observation was made in the case of Coward v M.I.B. [1962] 1 All ER 531 CA where it is said
that there lies no legal intention of the party giving pillion lift to his friend.

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Application:
In the present case, it is observed that Nick is addicted to heavy drinking habit. His uncle
Fregg is concerned with it. In order to encourage him to give up addiction, Fregg made an offer
to pay 1000 $ to Nick if he could give up his drinking habit for at least one month from 1st of
July. Here it is seen that it amounts to a domestic agreement as the intention of Fregg behind
creating this agreement is to save his favorite nephew from the habit of drinking out of love and
care towards him. This can be supported by the case law of Jones v Padavatton [1969] 1 WLR
328. Further the offer is not seen to be accepted by Nick and hence agreement is formed between
them.
However, Nick became conscious of his drinking addiction because of his bad health and
prior to offer made by uncle, he joined a group called AA or Alcoholics Anonymous. He had to
sign a document in order to be a member of the group. Such document states that he will be
taking his best measures in order to keep himself away from drinking habit. Hence an agreement
is created between AA group and Nick before the offer from his uncle Fregg was made to Nick.
Hence he is bound by the agreement between AA group and him.
For the entire month of July, he did not touch alcohol. He further admitted that this is
because of his health concern and not though of getting reward from his uncle.
Thus from the discussion made above, it is seen that there was no valid contract between
uncle and Nick as there was no acceptance and valid legal intention. Further such agreement was
more of a social as well as domestic type. Moreover, he also admitted that he gave up alcohol in
July due to his health issue and financial reward.

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Hence he cannot enforce the claim of 1000 $ against his uncle due to absence of
formation of legally enforceable contract.
Conclusion:
Thus, as there is no valid contract between Frank and Nick and hence Nick cannot claim
1000 $ from Frank.
Answer 2:
Issues:
There are four issues that have to be discussed in the present case scenario and they are as
follows;
 Whether Donald has any right when both Donald and Hugh have a belief that the
diamond is of rough surface,
 Whether Donald has any right against Hugh when Donald though that the diamond is of
rough quality and he did not reveal this to Hugh who again thinks it to be a topaz,
 Whether Donald has any right when Donald informed Hugh that he was pleased to get a
diamond which was not corrected by Hugh,
 Whether Donald has any right Hugh being an expert of diamonds made an offer of a
stone to High by giving assurance that it is a diamond and he believes it to be so.
Rules:
A contract can be rescinded and damages can be claimed if one party makes a
misrepresentation to another in such contract. Misrepresentation means a statement or
representation made by one of the parties to the contract to another while making negotiations

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related to the contract when such statement or representation is misleading or false and the party
to whom such representation is made has believed it and on the basis of which entered in the
contract. Two main elements that must be present in order for making claim of remedy against
such misrepresentation are presence of a misleading or false statement or representation and the
party to whom it is made must have believed it and acted on it as given in Bisset v Wilkinson
[1927] AC 177. In the common law of contract, there lie three kinds of misrepresentation and
depending on such kind, the remedy available to the innocent party is decided. The kinds are
fraudulent misrepresentation, innocent misrepresentation and negligent misrepresentation.
Fraudulent misrepresentation occurs when one party with an intention of committing
fraud makes a false representation to another party so as to induce the other party to enter into
the contract. To prove a causation of a fraudulent representation, three elements to be satisfied as
given in Derry v Peak 1869, where the defendant must know the representation is false, he
himself does not believe in it and he is reckless about its truth. The remedies available are
rescission and damages as given in Doyle v Olby 1969.
In case of Negligent representation either rescission or damages are available and in
innocent kind, both rescission and damages are available.
Application:
In the present case, both Hugh and David are members belonging to a gem stone club.
Both meet each other at a meeting. David was planning to buy a stone fir his ring. So he visited
Hugh to buy from him. From the above facts it is seen that in the 1st case, it is innocent
representation as in Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961]
EWCA Civ 7. This is because both of them believed that the stone of is of rough surface, hence

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there is innocent representation made by Hugh as he believes in it and he does not have malafide
intention to induce David into the agreement.
In 2nd case it is negligent representation made by Hugh to David as in Esso Petroleum Co
Ltd v Mardon [1976] EWCA Civ 4. The reason behind it is that it is clearly known to David that
it is a rough surface diamond, he did not disclose this to Hugh who again though it to be topaz.
Thus David was negligent in informing Hugh that the stone is not topaz but a diamond. The
remedies available to him are rescission and damage both against David.
In the 3rd case, it is fraudulent representation, the reason behind it is that Hugh inspite of
knowing that the stone is not a diamond, did not take any initiative to correct David that it was
not diamond but a topaz. He had although knowledge of the fact that it is not diamond, he did not
rectify Hugh. This thus amounts to fraudulent representation as seen in Edgington v Fitzmaurice
(1885). Thus David can claim both damages and the rescission.
Finally, in the last case it is again innocent representation as per Bisset v Wilkinson. This
is because here Hugh honestly informs that it is a diamond. This amounts to an innocent
representation. Thus David can claim damages or rescission instead of damages.
Conclusion:
 Donald has right of damages when both Donald and Hugh have a belief that the diamond
is of rough surface,
 Donald has any right of rescission and damages against Hugh when Donald though that
the diamond is of rough quality and he did not reveal this to Hugh who again thinks it to
be a topaz,

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 Whether Donald has right of rescission and damages when Donald informed Hugh that
he was pleased to get a diamond which was not corrected by Hugh,
 Whether Donald has right of rescission against as Hugh being an expert of diamonds
made an offer of a stone to High by giving assurance that it is a diamond and he believes
it to be so.

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References:
Adriaanse, M.J., 2016. Construction contract law. Macmillan International Higher Education
Balfour v Balfour [1919] 2 KB 571
Bisset v Wilkinson [1927] AC 177
Coward v M.I.B. [1962] 1 All ER 531 CA
Derry v Peak 1869
Doyle v Olby 1969
Edgington v Fitzmaurice (1885)
Errington v Errington Woods [1952] 1 KB
Esso Petroleum Co Ltd v Mardon [1976] EWCA Civ 4
Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7
Jones v Padavatton [1969] 1 WLR 328
Merritt v Merritt [1970] 1 WLR 1211
Simpkins v Pays [1955] 1 WLR 975