Analyzing Contractual Issues: Annie's Claim & Dodo's Responsibilities

This case study delves into two distinct legal scenarios. The first involves Annie's potential legal recourse against Desert Island Discs for misrepresentation in a sales contract concerning Beyonce albums, analyzing the elements of fraudulent misrepresentation, reliance, and potential defenses based on Annie's failure to inspect the goods. The analysis considers relevant case law such as Redgrave v Hurd and Carlill v Carbolic Smoke Ball Company. The second scenario explores Dodo's potential liability for debts related to a nuisance created by Pina and a fraudulent mortgage obtained by Pina. The discussion invokes the Rylands v Fletcher doctrine and analyzes whether Dodo can be held responsible for Pina's actions, referencing cases like Lewis v Averay and Cundy v Lindsay to determine the validity of the mortgage and the potential for Victoria State Bank to pursue claims against Pina for conversion. The study concludes by assessing the likely outcomes and the legal principles that would govern the decisions.

Running head: ASSIGNMENT S1 2018 1
Assignment S1 2018
Student’s Name
Institutional Affiliation

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Assignment S1 2018
Question 1
Discuss any grounds on which Annie could take legal action to recover the money she has
paid for the discs.
Issues
1. Under the Contract Act and common law, which requires the parties to agree on the
contractual subject matter, can Annie take legal action to recover the money she has paid
for discs she bought from a shop under terms that are different from what was displayed
in the advertisement on the shop’s window when the shop carried an advertisement
“Today’s special offer: Beyonce songs and albums. These normally sell for $12.99 each,
now $2.99 or five for $12.99.”?
2. Under Australian law and common law governing contracts and sale of goods, what
defences can the Desert Island Discs have in case of a legal action?
Rule
1. According to Redgrave v Hurd (1881), fraudulent misrepresentation is a basis for
rescinding a contract.
2. The Competition and Consumer Act 2010 (Cth) section 18(1) provides that “A person
must not, in trade or commerce, engage in conduct that is misleading or deceptive or is
likely to mislead or deceive.”
Application
One of the cases that considered the effect of conditions going to the root of a contract
was Associated Newspapers Ltd v Bancks [1951] HCA 24. In this case, the Court was called to
determine whether a change in terms that had induced a party to enter into a contract was a basis

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for rescinding a contract. In its reasoning, the court considered the materiality of a term in
inducing a contract. According to the Associated Newspapers Ltd court, “The test of essentiality
is whether it appears from the general nature of the contract considered as a whole, or from some
particular term or terms, that the promise is of such importance to the promisee that he would not
have entered into the contract unless he had been assured of a strict or a substantial performance
of the promise, as the case may be, and that this ought to have been apparent to the promisor”
(1951). Therefore, the terms of the offer were material in inducing the Annie’s purchase.
Upon proving misrepresentation, Annie may recover the money she used to pay for the
discs. There will be misrepresentation if “a defendant makes a false representation, knowing it to
be untrue, or being reckless as to whether it is true, and intends that the claimant should act in
reliance on it, then in so far as the latter does so and suffers” (Clerk & Lindsell, pp 23. para 18-
01). Liability grounded on misrepresentation requires adducing of evidence to the effect that a
party abdicated its duty of care by making a fraudulent or negligent misrepresentation which a
counterparty relied on to its detriment. Under common law, there is a presumption of reliance on
fraudulent misrepresentation. This was established in Dadourian Group International v Simms
[2006] EWHC 2973 (Ch). Therefore, liability will be construed upon satisfaction of the elements
of materiality of misrepresentation, reliance, and prejudice upon that reliance.
The remedies of misrepresentation are damages and rescission. Equitable principles
require restitution to the original place. Misrepresentation of stock valuation may necessitate
rescission of contract at the option of the buyer. Under equitable principles, the Court may grant
damages based on reliance of the seller’s offer to induce a sale. In the Carlill v Carbolic Smoke
Ball Company case, the court directed that a sales offer was an invitation to treat whose intent

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was establishing a contractual relationship. Similarly, the present offer is not a sales puff but an
offer of a unilateral contract. Accordingly, Annie relied on the sales offer to buy the discs.
Defences Desert Island Discs may have
Although fraudulent misrepresentation entitles a party to recover costs, Desert Island
Discs may argue that Annie did not rely upon the inducement by the misrepresentation of the
offer because she was not careful in confirming the costs of her purchases or the contents of the
music albums. In Redgrave v Hurd, the Court took note of the caveat emptor principle when it
rejected the defendant’s action for recovery because the defendant had been careless in his
reliance on the fraudulent misrepresentation. In particular, the defendant became aware of the
fraudulent misrepresentation after the purchase thus negating any ground for arguing that the
contractual relationship was induced by the misrepresentation. Put differently; inducement is not
enough; a party must show that they took care to examine the subject matter of the contract
(Poole, 2016). In this light, Annie did not check the albums before purchasing. In
Pharmaceutical Society of Great Britain v Boots, the Court was called to determine the time of
acceptance of offer. In its reasoning, the court observed that display of goods in a store is an
invitation to treat rather than an offer. As such, the contract of sales is concluded when the
customer takes his or her goods to the shopkeeper and the shopkeeper accepts payment
(McKendrick, 2014). Applying the Pharmaceutical Society of Great Britain shows that the
contract concluded when Annie offered her credit card. Therefore, she had enough time to
ascertain the terms of the offer by checking the subject matter of the contract. Had she checked,
she would have discovered that they were not original albums. Furthermore, her failure to check
the contents denied her the chance to discover that some of the albums featured the same songs.
Conclusion

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It is likely that Desert Island Discs will found to have breached the sales contract. The
court shall likely base its decision on fraudulent misrepresentation to induce a contract.
However, Desert Island Discs may argue that it is not liable on the basis that Annie did not
exercise judgement prior to the purchase. As a result, the court may either rule in favour of
Annie or rule against her claim to recover because she did not check the subject matter of the
contract.
Question 2
Discuss whether Dodo is responsible for these debts
Discussion
Dodo and Pina have proprietary interests on the land. Under the Rylands v Fletcher
doctrine, property owners are liable for any unreasonable interference on adjoining land or
within a neighbourhood (Hepburn, 2013). In this light, the shack was a ground for actionable
nuisance which would have made Dodo and Pina to incur costs of removal of the shack. As such,
the action by the Council to recover costs of removal is justified because the Council does not
have a statutory obligation in relation to private nuisance. However, Dodo may argue for
exemption because he was not the creator of the nuisance. In Richmond City Council v
Scantelbury [1991], the Court considered the party liable for private nuisance. According to the
court, strict liability lies on the creator of a private nuisance. In the present facts pattern, strict
liability and in extension liability for debt ought to rest on Pina because he was the creator of the
nuisance under question.
A case which discusses the concept of contractual mistake relating to identity in contracts
is Lewis v Averay [1972] 1 QB 198. The Lewis court reiterated that fraud renders a contract is
avoidable. Contracts operate on consensus ad idem; therefore, fraud vitiates consent. Lord

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Denning further observed that if third party rights were involved, such a contract could not be
avoided and that liability should lie with party committing the mistake. In Lewis, the applicant
sold his car under a mistaken belief that he was dealing with Greene- a famous actor. Later, the
car was sold to Avery. However, Lewis discovered that he had not dealt with Greene and that he
had been paid with a stolen cheque. Lewis sued Avery for conversion. The Court directed that
mistake of identity does not void a contract innocent and the purchaser was entitled to retain the
property. Connecting the dictum in Lewis to current facts does not void the current mortgage
contract. However, Victoria State Bank cannot enforce its security interest against Dodo.
The Victoria State Bank may rely on Cundy v Lindsay (1878) 3 App Cas 459 to argue
that the contract was void and that it is entitled to enforce its security. In Cundy v Lindsay,
Blenkarn impersonated Blenkiron & Co thus entering into a contract of sale with Lindsay.
Lindsay supplied linen handkerchief to Blenkarn under the mistaken belief that it was dealing
with Blenkiron. Ignorant of Blenkiron’s fraud, Cundy purchased goods from Blenkiron. Lindsay
sought to enforce its proprietary rights by suing Cundy, an innocent purchaser, for conversion.
The court invoked the doctrine of consensus ad idem to determine that Lindsay did not intend to
pass title to Blenkiron hence Lindsay could recover its good. Lord Penzance stated:
“In the present case Alfred Blenkarn pretended that he was, and acted as if he was,
Blenkiron & Co. with whom alone the vendors meant to deal. No contract was ever
intended with him, and the contract which was intended failed for want of another party
to it” (Cundy v Lindsay, 1878). Lord Cairns observed that “[T]here was no consensus
of mind which could lead to any agreement or any contract whatever.”
Conclusion

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In agreement with Cundy v Lindsay, Victoria State Bank should sue Pina for conversion
because it never intended to deal with him. The nemo dat quod non habet principle provides that
one cannot transfer a better title than he possesses. Similarly, Pina was in want of title thus could
not execute the mortgage on behalf of Dodo. Consequently, this should negate Dodo’s
responsibility for the mortgage.

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References
Associated Newspapers Ltd v Bancks [1951] HCA 24; (1951) 83 CLR 322.
Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1.
Clerk, J. F., Lindsell, W. H., & Margaret, B. (n.d.). Clerk & Lindsell on torts (No. 3). (19 ed.).
Thomson Professional Pub Cn.
Cundy v Lindsay, 3 App Cas 459 (1878).
Dadourian Group International v Simms, EWHC 2973 (Ch) (2006).
Hepburn, S. (2013). Australian Principles of Property Law. Routledge-Cavendish.
Lewis v Averay, 1 QB 198 (1972).
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).
Poole, J. (2016). Textbook on contract law. Oxford University Press.
Redgrave v Hurd (1881) 20 Ch D 1 (R&G(C) [14.5]).
Richmond City Council v Scantelbury [1991] 2 VR 38.
Rylands v Fletcher (1868) LR 3 HL 330.