Attempted answer by a student

Commercial Law JUST 1023 Final Examination Semester 1, 2007


Question 1

(a) Peter, a 14 year old school boy with athletic ability, entered into a contract with Stanley, a highly respected soccer coach. Under the contract Peter is expected to attend many exhibition games and in return he receives good payment. Peter however now wishes to avoid this arrangement.

Required:
Advise Peter as to his relevant legal position. (5 marks)

Attempt Solution:
The issue in this case lies in whether is there a valid and enforceable contract between Peter and Stanley. Minors’ contracts generally are classified into three distinct classes: (1) Void Contracts; (2) Voidable Contracts; and (3) Ratifiable Contracts. Here, the contract in relevance appears to be one of a beneficial contract of employment. Thus, it falls under the category of valid contracts.

Such a contract can be repudiated if the terms are seen as unreasonable and not beneficial to the minor: Francesco V Barnum. Relating to the facts of this case, Peter is required to attend many exhibition games of which he is entitled to good remuneration. Thus, it appears to be a fair and reasonable contract for Peter. Unless there had been some other possibilities of unreasonable terms of employment faced by Peter, which are not stated in this case, Peter has to continue with this agreement to avoid any potential legal action taken by Stanley.


(b) Franny took a taxi to the airport. The taxi was driven by Ismail. On the way to the airport Ismail exceeded the speed limit in contravention of road safety legislation. Franny, as a consequence, refuses to pay the fare.

Required:
Advise Franny. (5 marks)

Attempt Solution:
Whether Franny is able to avoid the fare payment would have to depend on the possibility of raising illegality as a vitiating factor. Here, Franny has a legitimate and enforceable contract of service with Ismail. The only problem lies in the fact that Ismail had committed an illegal act of speeding while performing his contractual obligation towards Franny. The law states that the unlawful performance of an otherwise lawful contract does not necessarily render the entire contract void.

Following the case in St John Shipping Corporation V Joseph Rank Ltd, Franny cannot rely on this illegal act of speeding to refuse payment to Ismail. The contractual rights and obligations between Franny and Ismail remains unaffected.


© Sam, a financial secretary for a large food processing company, rented expensive cars over a 2-month period for his own personal use and recreation. In the company account books, Sam claimed to be hiring them for the use by the company. Sam has since left the company. Soon after however the company was asked to pay for the rental of the cars. The company claimed however that it was not liable to pay since Sam had no authority to enter into such a contract.

Required:
Advise the company. (6 marks)

Attempt Solution:
The critical question is whether the company is liable for Sam’s indiscriminate act. On the facts of the case, it appears that Sam has no authority to rent expensive cars for the company at all. Thus, we examine if Sam had displayed some degree of ostensible authority, in renting the cars, to the car rental company. As the financial secretary of a large company, it can be seen to be very normal for an employee of his position to rent expensive cars on behalf of the company for corporate usage. Thus, it would not be surprising for the car rental company to be ignorant of the fact that the rentals were made without actual authority.

Following the case of First Energy (UK) Ltd V Hungarian International Bank Ltd, the general principle is that if the company has expressly authorized the agent to make representations on its behalf, then any representation made by the agent that he himself has authority to do an act is a good representation for the purpose of conferring apparent authority on the agent to do that act, even if he had been expressly prohibited to do so. Accordingly, a potentially enforceable contract arises between the Sam’s company and the car rental company. Sam’s company can, however, sue Sam for breach of duty to follow instructions, since it is clear that Sam had contravened an express term of his employment contract to maintain personal integrity and honesty towards his employer.


(d) Tom, a senior manager for Ajax car engineering company, has entered into an employment contract. One of the terms of the contract stated that he was not allowed to work for any other similar company after he left Ajax anywhere within Singapore for four years. Three years after he left, Tom commenced working for Andax, a boating engineering company.

Required:
Advise Ajax of their legal position to enforce the term. (6 marks)



Attempt Solution:
This case appears to be of a restraint of trade clause in an employment contract. The key issue here is whether Ajax can enforce the clause against Tom for joining another company, Andax. Generally, a restraint of trade clause can be held to be effective if it can satisfy three requirements: (1) Convenantee must have legitimate interest to protect; (2) Clause must be reasonable in terms of duration, scope and subject matter; and (3) Must not be contrary to public interest.

Specifically, the clause in question only prohibits Tom from working in a competing company after he leaves Ajax. Although the time restraint period of four years can be seen to be unreasonable, it is not the key issue of this case. The key fact to note is Tom did not seek fresh employment with a competing rival company nor a company that has similar business interests as Ajax. Since Ajax cannot satisfy any of the preceding three requirements, it cannot enforce the restraint of trade clause against Tom.


(e) John, a car salesman, sold Sandy a car for $100,000 some months ago. As part of his sales talk, he told Sandy that the car had a large engine. Sandy recently discovered that the car had only a very small engine (making the car far less valuable).

Required:
Advise Sandy as to her legal rights. (6 marks)

Attempt Solution:
The area of concern in this case is whether John has subjected Sandy to misrepresentation of facts, in her car purchase contract. For a statement to be considered as a misrepresentation, it must be a false statement that is relied upon by the representee and induced the contract. Here, John had made a false statement of fact regarding the car engine to Sandy who later, was induced into the purchase contract. It is clear that John had the intention to be dishonest in his sales talk when we consider the fact that he is supposed to be knowledgeable in the area of cars. Following the case of Derry V Peek, Sandy has a high chance of being able to rescind the contract and seek damages equivalent to the purchase sum of $100,000.


Question 2

Antonia recently decided to sell her Maserati sports car. She placed an advertisement in the newspaper on 1 November describing the car as very fast and new and “offering the car for sale” for $4,500. Tania, responding to the advertisement, rang Antonia and said she wanted to pay approximately the market value, namely, $3,500. Antonia said she actually wanted approximately $4,000 and would give Tania a week to make up her mind.

The next day (2 November) Antonia received a call from her friend Catherine. After some negotiation Catherine paid $5,000 in exchange for the car.

On 3 November Tania sent Antonia a letter accepting to buy the car for $4,000. The letter arrived (and was read by Antonia) on 6 November. That evening, Antonia telephoned Tania and said that she unfortunately has already sold the car and that Tania should buy another identical car that Antonia has for sale. Antonia failed to tell Tania that this car was older, very slow and not a Maserati but a Toyota. Tania agrees and when she took delivery is unhappy and complains.

Required:
Is there any concluded contract between the parties? Fully explain. (12 marks)

Attempt Solution:
The focus point of this case is whether an enforceable contract for the sale of the Toyota car exists. The preceding facts underlying this case – events surrounding and leading up to the sale of the Maserati sports car – imposes no concern on the second agreement to purchase the Toyota car which also the purported ‘identical car’ mentioned by Antonia prior to the agreement. This is true since Tania had not protested against the sale of the Maserati sports car in any way and had in actual fact, voluntarily accepted this fact without question.

Here, Antonia had offered to Tania that she had an identical Maserati sports car for sale. However, this was in fact not the case since the subject car was actually not a Maserati sports car at all. Under the statutory provisions of SGA s13(1), there is an implied condition where if the contract involves the sale of goods by description, the goods delivered will match the description given by the seller. Antonia has thus breached this implied condition of the contract. Following the case of Varley V Whipp, Tania will have the legal right to reject the delivery of the Toyota car and be entitled to recover money paid for it. Accordingly, there will be no valid and enforceable contract between Antonia and Tania.


Question 3

(a) In January 2004, Vince rented an office from his mother-in-law Jane for $20,000 per year and signed a five-year lease.

After the birth of his second child in January 2005, Vince approached Jane and explained that he would be unable to afford the rent unless she agreed to decrease his liability to $10,000 per year. He explained that if Jane was unwilling to do this, he would have to move to Australia where a friend has offered a better deal. Jane agreed to the rent reduction.

Earlier this year, in January 2007, Vince separated from his wife Michelle (Jane’s daughter) and Jane is now demanding $20,000 in back rent for the past two years. Jane has commenced legal proceedings for breach of contract.

Required:
Fully advise Vince. (10 marks)

Attempt Solution:
Whether Vince is able to avoid liability for the back rent of $20,000 would have to depend on whether he can successfully establish promissory estoppel as a defence. We note that for this case, Vince had entered into a written lease with Jane, even though they shared a domestic relationship. Thus, it is clear both parties had the intention to maintain a legal relationship under the agreement.

Secondly, Jane had also explicitly agreed to Tom’s request for a reduction in rent after the birth of his second child. This agreement, considering the facts surrounding the case, appears to be one that is intended to affect the existing legal relationship between Tom and Jane (after all the rent is the key subject of concern under the agreement).

Thirdly, we see that on the reliance of Jane’s promise, Tom altered his position and proceeded with paying reduced rent for the subsequent two years until January 2007.

Finally, it appears obvious that if Jane were to be allowed to claim the back rent of $20,000, it would be inequitable towards Tom. Following the case of Central London Property Trust V High Trees Houses Ltd, Tom is able to raise the doctrine of promissory estoppel as a defence against Jane’s claim. It is possible to do so since the four elements required to establish promissory estoppel exist. One important area to note is, however, the effect of promissory estoppel is to suspend Jane’s rights temporarily in this case. Jane is still entitled to receive full rent (after the purported period of financial difficulty experience by Tom has ceased) should Tom choose to continue with the lease agreement with Jane into the future indefinitely.



(b) Singapore’s legal system has been described as being one created from various local and foreign sources and influences.

Required:
Referring to examples, explain this statement. (10 marks)

Attempt Solution:
The Singapore legal system has roots dating back to the British colonial period where English law began its inception in 1826. Common law tradition prevailed during that period and still plays a significant role in present day Singapore. For example, judges, in delivering court judgments under the notion of common law, follow outcomes of preceding English cases as a guide. But Singapore courts have declared themselves not to be bound by horizontal stare decisis. Further, with the enactment of the Application of English Law Act (AELA) in Singapore in 1993, an English statute can apply to cases in Singapore if it is specifically provided for in the AELA or another written law. This way, we can see that the Singapore legal system has origins and continuous influence from the English common law and statutory law systems until today.

The current trend observed is that, this English influence has decreased especially as the Singapore legislature, judiciary and legal profession mature. Though rooted in English law tradition, Singapore is likely to develop legal rules and processes that will be suitable for a cosmopolitan nation with a unique blend of east and west. Thus, an autochthonous legal system can be said to be emerging. As a reference example, the Singapore Parliament enacted the Electronic Transactions Act (ETA) in 1998, in an attempt to facilitate and define the legal rules applicable in electronic commercial transactions locally. The Singapore legal system, in summarizing, can thus be described as one created from a fusion of local and foreign sources and influences.



Question 4

One year ago, Melinda, an Australian citizen, decided to come to Singapore and start a chiropractic business. She is interested in buying a new carpet for her business but on this occasion decides to buy a carpet for her home. Melinda is unfamiliar with Singapore law. Melinda suffers from a very rare breathing-sensitive condition and is worried about purchasing a product that could cause a return of her problem. Melinda approaches the Exotica Carpet Store and asks the salesman to view carpets. Melinda explains that the carpet should be of very short pile type to avoid people tripping over. Melinda also explains her condition to the salesman and he showed her a carpet manufactured by Tehran Ltd. The salesman states: “This carpet is ideal for your needs”. A label on the carpet states: “This product is guaranteed by the manufacturer to be free from any chemical additives”. Also, a representative of Tehran Ltd has assured Melinda of the chemical-free nature of all its carpet products.

Melinda went to the counter to finalise the sale and near the cash register was a small sign that stated: “No exchanges or refunds. No statutory conditions and warranties apply to contracts entered into with Exotica Carpet Stores”. Melinda paid $1,000.

Melinda then took the carpet home and set it down in her bedroom. After one month, the carpet shed its fibres. Recently, Melinda woke up in the middle of the night coughing up blood. Tests revealed that during the manufacturing process, the carpet had been mistakenly treated with toxic chemicals. These chemicals caused Melinda’s sickness. Generally, the carpet was of poor quality, despite its high cost. Melinda had to be hospitalized for one month and she lost many customers from her chiropractic business. It was also revealed that had Melinda not been lazy and instead slept with her special air filter-inhaler on, she would not have become as seriously ill.

Required:
Melinda knows nothing of local law and comes to you for help. Therefore fully advise Melinda of all her possible separate legal rights and remedies against both Exotica Carpet Stores and Tehran Ltd. Your answer should consider any relevant common law and/or statutory principles and considerations. (20 marks)

Attempt Solution:
The key question in this case lies in whether Melinda is able to initiate legal claims against both Exotica Carpet Stores and Tehran Ltd for her suffering and thus, subsequent losses.

Legal Rights and Remedies Against Exotica Carpet Stores:

Firstly, there is the issue of whether Exotica Carpet Stores had incurred a breach of contract under SGA s14(3), in selling the subject carpet to Melinda. Here, prior to the purchase (as a consumer), Melinda had specifically made known to the salesman her breathing-sensitive condition. Thus, it can be perceived that Exotica Carpet Stores had breached the express condition of fitness for purpose. Following the case of Gema Metal Ceilings (Far East) Pte Ltd V Iwatani Techno Construction (M) Sdn Bhd, Exotica Carpet Stores is liable even if it can prove that all reasonable steps had been taken to avoid breaching this condition.

Secondly, there is the issue of the validity of the liability exclusion clause in the store. The law states that liability exclusion clauses covering SGA s14(3) cannot be enforced in a consumer transaction: UCTA s6(2). Here, Melinda is dealing as a consumer who had purchased the carpet for domestic usage.

Lastly, it was a fact that the carpet was of poor quality and started shedding its fibres only after a short period of one month, despite its high cost of $1,000. Under the statutory requirements of SGA s14(2), there is an implied condition to provide goods which are of satisfactory quality imposed upon the seller. This condition encompasses aspects of quality such as durability. Here, Exotica Carpet Stores had failed to satisfy this condition by selling a poor quality carpet to Melinda.

On balance, it appears likely that Melinda can sue Exotica Carpet Stores for breaching SGA s14(2) and s14(3) and claim damages equivalent to the price of the carpet ($1,000)

Legal Rights and Remedies Against Tehran Ltd:

Firstly, we examine the possibility of contingent liability on Tehran Ltd. At law, there are three ways where a buyer can circumvent the rule of privity of contract to claim against a manufacturer for defective goods: (1) where a manufacturer’s warranty or guarantee to replace or a defective product exists; or (2) the manufacturer has made express undertakings concerning the product to the buyer; or (3) through the common law tort of negligence. In this instance, a Tehran Ltd representative had assured Melinda that its products were chemical-free. It was through the strength of this representation that Melinda decided to purchase the carpet.

Secondly, the key question is whether Tehran Ltd owes a duty of care to Melinda, in selling its supposedly chemical-free carpet. Here, despite the fact that toxic chemicals are harmful to human beings, Tehran Ltd failed to take reasonable care as a manufacturer to avoid acts or omissions that it could reasonably foresee would cause injury or harm to its product users. Following the neighbour principle in Donoghue V Stevenson, it can be shown that Tehran Ltd owes Melinda a duty of care.

Thirdly, we determine if this duty of care had been breached. As a manufacturer of carpets with firm undertakings that its products are chemical-free, Tehran Ltd has breached this duty of care by allowing a toxic chemical-treated carpet to be sold to Melinda.

Lastly, we see if Melinda is able to show that she suffered harm as a result of Tehran Ltd’s breach of duty. Here, it is obvious that Melinda would not have suffered such harm but for Tehran Ltd’s negligence. The next question that follows immediately after establishing causation would be whether it was reasonable foreseeable that Melinda would suffer from such a kind of harm. In foreseeing the damage, the law states that it is not necessary to foresee the exact harm actually suffered by a plaintiff as a result of the defendant’s breach. It is sufficient if the type or kind of harm is reasonably foreseeable. Here, Tehran Ltd ought to know or understood the potential consequences of toxic chemicals-tainted products affecting consumers. Applying the case of Bradford V Robinson Rentals Ltd, liability can be pinned upon Tehran Ltd.

On a scale of probability, having established tortious liability for negligence on Tehran Ltd, it is likely that Melinda will be able to pursue common law damages, both general and special, for her suffering. General damages will cover her pain and suffering while special damages will cover her loss of earnings and actual medical costs.

One important issue to note is, however, Tehran Ltd might raise the partial defence of contributory negligence against Melinda. After all, it was noted that Melinda did failed to exercise caution on her part by sleeping with her special air-filter which, could have mitigated her harm. If Tehran Ltd is able to convince the court on this point of argument, it might be able to avoid some degree of liability of which, the quantum will be a matter of reasoning to be decided by the court.