Legal Problem Solving Essay: Enterprise Law, Spring 2019

This essay provides a comprehensive analysis of two contract law scenarios. The first scenario examines the formation of a contract between a family member and the enforceability of a promise based on the intention to create legal relations and the concept of consideration. The second scenario explores issues of misrepresentation in a gemstone sale, analyzing different types of misrepresentation (innocent, negligent, and fraudulent) and the available remedies, including rescission and damages. The essay demonstrates an understanding of relevant case law and legal principles, including landmark decisions and key elements of contract formation and vitiating factors. It applies these principles to the facts of each case to reach conclusions about the legal outcomes.

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

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Question 1:
Issue:
The issue involved in the present case study is whether Frank has any legal claim for an
amount of 1000 $ against Frank, his uncle.
Rules:
One of the most important elements of forming a contract which is legally binding is
presence of the legal intention of the parties (Smits 2017). This element can convert any type of
agreement into a contract. In general the intention forms a significant element in case of
commercial agreements as they are assumed to result into legal consequences (Adriaanse 2016).
This is entrenched in the landmark decision given in Helmos Enterprises Pty Ltd v Jaylor Pty Ltd
[2005] NSWCA 235 by the Court of Appeal (NSW). However where the parties of the contract
involved into social or domestic agreements they do not possess legal intention. Family
agreements are considered not to be giving rise to legal relationships unless and until there exist
clear evidence in contradiction. This is a very common presumption in case of social and
domestic agreements that the parties involved in it have no legal intention as observed in the case
of Jones v Padavatton [1969] 1 WLR 328. However this presumption can be e reputed if
evidences to the contrary have been produced. Such evidences are presence of a written contract
as seen in Errington v Errington Woods [1952] 1 KB 290, presence of a third party to such
contract as observed in Simpkins v Pays [1955] 1 WLR 975 or where the parties had separated
from one another as observed in the decision given in the case of Merritt v Merritt [1970] 1 WLR
1211. In general the court applies the objective test to decide whether the parties to the contract

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have any legal intention to be bound by it as seen in Carlill v Carbolic Smoke Ball Company
[1893] 1 QB 256.
Application
From the facts of the present case it is seen that Frank is very much disturbed regarding
the heavy drinking addiction of his nephew Nick. Hence in order to keep him away from this
addiction he made an offer that he will be paying $1,000 on the condition that Nick will keep
himself abstained from taking alcohol for a period of one month which will start on 1st of July.
This shows a social and domestic agreement is formed between them following the case of Jones
v Padavatton [1969] 1 WLR 328. On the other hand, Nick himself has become very conscious
about his degrading health and before the proposal made by his uncle comes into his knowledge,
he availed a membership in a group called Alcoholics Anonymous, hereinafter referred to as AA.
For such membership, he signed the document that he will be doing his best to keep himself
away from this addiction of drinking. This showed a legally enforceable contract is formed
between Nick and AA. During the entire month of July neck did not even touch alcohol. The
reason behind it as admitted by him is that he is concerned about his degrading health and also
the promise he made to the group instead of any financial reward. Hence from the above
discussion it is seen that the agreement between Frank and Nick was more of a social nature as
there lacks legal intention as seen Balfour v Balfour [1919] 2 KB 571. Further such agreement
does fall into any of the 3 exceptions to social and domestic agreement as mentioned above.
Frank was more concerned about the addiction of Nick rather than creating any legal relation
with him, hence the reward of $1000 does not amount to a consideration. Thus due to the
absence of a legal intention, Nick cannot claim 1000 $ from his uncle as a reward against
overcoming the addiction.

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Conclusion:
It can be inferred that Frank has no legal claim for an amount of 1000 $ against Frank, his
uncle.
Answer 2:
Issues:
The present case deals with the following issues that have to be discussed in the light of
contract law;
 Donald’s rights when it was believed by both Hugh and Donald that the diamond is
rough,
 Donald’s rights when it was believed by Donald that the stone is diamond of rough
quality and he did not discuss this with Hugh who thought it is a topaz,
 Donald’s rights when it was told by Donald to Hugh that he was happy to get a diamond
but he was not rectified by Hugh,
 Donald’s rights when the stone offered and assured by Hugh, a diamond expert of the
club as a diamond.
Rules:
One of the vitiating factors in case of a contract is misrepresentation by a party to another
in such agreement. Misrepresentation can be referred to as a statement of fact made by one party
to another during negotiating a contract where such statement s either false or misleading and the
other party has relied on such misrepresented fact to enter into the contract (Marsh 2017).

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To claim a remedy against misrepresentation, the following conditions are to be satisfied
which are as follows;
 Untrue statement,
 Inducement or reliance.
Firstly, there has to be false statement of either fact or law must be made by one party to
another as seen in the case of Bisset v Wilkinson [1927] AC 177. A statement expressing an
opinion can amount to a misrepresentation when the representor knows the true facts as laid
down in Smith v Land & House Property Corp (1884) 28 Ch D 7.
The second condition to be satisfied is the representor party has tried to induce the other
party by making such representation and relying on it, the other party has entered into a contract
with the representor. However as observed in Horsfall v Thomas [1862] 1 H&C 90 there lies no
inducement if the representee does not know about the untrue statement (Poole 2016).
Misrepresentation can be negligent, fraudulent or innocent. Misrepresentation is said to
be fraudulent if the false statement is made knowing it to be untrue or without believing it to be
true or in a careless or reckless manner as laid down in Derry v Peek (1889) 5 T.L.R. 625.
Negligent Misrepresentation occurs when a statement is made without checking its
validity or truthfulness in a casual manner as laid in Howard Marine v Ogden [1978] QB 574.
Innocent Misrepresentation occurs when the representor makes such statement considering it to
be true. Remedy available in case of a fraudulent as well as negligent representation is rescission
of the contract and claiming damages. Remedies available to innocent type of misrepresentation
is either rescission of the contract or damages instead of rescission.

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Application:
In the present case it is seen that both Hugh and Donald belong to gemstone clubs as
members. They meet each other in a meeting. Hugh was with a sign at a stand. Donald was in
search of a suitable stone for his ring. He chose a stone and bought it from Hugh at 450 $. Later
on, Donald identified the stone to be topaz. He now wants to return the stone and get his money
back. In the given scenario it is seen that misrepresentation happened as both its elements are
satisfied.
In the first case, it is seen that both David and Hugh have a belief that the stone is a rough
diamond. Hence here it can be innocent representation made by Hugh. Thus remedy available to
David is rescission only and no claiming of damages as seen in Hong Kong Fir Shipping Co Ltd
v Kawasaki Kisen Kaisha Ltd [1961] EWCA Civ 7.
In the second case, David inspite of knowing it to be a rough diamond did not discuss
with Hugh who has knowledge of it to be a topaz. It amounts to a negligent misrepresentation
and the remedy available is rescission of the contract as well as claiming damages as laid down
in Esso Petroleum Co Ltd v Mardon [1976] EWCA Civ 4.
In the 3rd case, Hugh did not rectify him inspite of knowing that it was not a diamond and
thus it amounts to a fraudulent misrepresentation and the remedies available are rescission as
well as claim of damages.
In the 4th case, applying the decision of Bisset v Wilkinson, it is seen that it was an
innocent misrepresentation as Hugh believes it to be so honestly. Thus Donald has remedy of
claiming damages but cannot rescind the contract.

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Conclusion:
Thus, it can be concluded that
 Donald can claim damages when it was believed by both Hugh and Donald that the
diamond is rough,
 Donald can claim for rescission and damages when it was believed by Donald that the
stone is diamond of rough quality and he did not discuss this with Hugh who thought it is
a topaz,
 Donald has the right to claim for rescission and damages when it was told by Donald to
Hugh that he was happy to get a diamond but he was not rectified by Hugh,
 Donald can claim damages when the stone offered and assured by Hugh, a diamond
expert of the club as a diamond.

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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.
Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256.
Derry v Peek (1889) 5 T.L.R. 625.
Errington v Errington Woods [1952] 1 KB 290
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.
Horsfall v Thomas [1862] 1 H&C 90
Howard Marine v Ogden [1978] QB 574
Jones v Padavatton [1969] 1 WLR 328.
Marsh, P., 2017. Contract law. In Contracting for Project Management (pp. 65-80). Routledge.
Merritt v Merritt [1970] 1 WLR 1211.
Poole, J., 2016. Textbook on contract law. Oxford University Press.
Simpkins v Pays [1955] 1 WLR 975

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Smith v Land & House Property Corp (1884) 28 Ch D 7.
Smits, J.M. ed., 2017. Contract law: a comparative introduction. Edward Elgar Publishing.