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Steve's assignment and what his lecturer thought

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Part 1

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Clearly a contract exists here. The issue is what, if any, legal rights Patricia Wu might have against Bob's Warehouse Pty Ltd after having purchased the photocopier for $35,000.

Patricia's best course of action would be under the Trade Practices Act (Cth) 1974 or the Goods Act (Vic) . However as there is an exclusion clause in this contract the Goods Act will not apply as under section 61 of the act exclusion clauses are permitted. The Trade Practices Act however does not permit exclusion clauses under section 68. She would look toward section 4 to see if the Trade Practices Act does apply in these circumstances. There are four steps in testing whether the Trade Practices Act applies.

Step one is to check whether the seller is a corporation, Patricia purchased the photocopier from Bob's Warehouse Pty Ltd who are clearly a corporation as they have proprietorship limited attached after their name.

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Step two is whether the contract is a consumer contract. A consumer contract is when the price of goods is less than $40,000 or the goods are normally used in a domestic or household situation. As the photocopier was $35,000 it is a consumer contract as it is less than the prescribed amount.

Step three is whether the sale was in the course of business. This means that the sale was done by a licensed seller and bought by a consumer, not just a sale between two people. Patricia bought the photocopier from Bob's Warehouse Pty Ltd so it is clearly in the course of business.

The final step is that the sale was not at an auction. As the photocopier was bought from Bob's and not at an auction the Trade Practices Act obviously applies.

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However Patricia must prove that the contract has been breached. The first way to see if it has is by seeing if any of the express terms have been breached, as the contract was a contract of purchase it would only contain terms relating to purchase, sale, warranties and the exclusion clause. As none of the express terms have been breached the next step would be to see if any of the implied terms have been breached.

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The first implied term that has been breached is the term of merchantable quality under section 71(1) of the Trade Practices Act. Merchantable quality is when a good is fit for the purpose it is reasonable to expect the good will be used for. The photocopier that Patricia bought is not of merchantable quality as the goods are not fit for the purpose that it is reasonable to expect having regard to price and other circumstances (H Beecham and Co Pty Ltd v Francis Howard and Co Pty Ltd [1921] VLR 428).

Also Patricia was not aware of the defect prior to sale and any inspection made by Patricia would not have revealed the defect. The term of merchantable quality has clearly been breached.

The next implied term that has been breached is fitness for purpose under section 71(2) of the Trade Practices Act. Second-hand goods such as the photocopier are generally expected to not be as fit as new goods (Atkinson v Hastings Deering (Qld) Pty Ltd [1985] ATPR 40-625). Also under this term the buyer must rely on seller's skill and judgement.

Patricia described to the salesperson that she needed the photocopier for her business of copying theses, and asked whether it could do a number of specialised tasks. The salesperson said that it could do all this and more, Patricia relied on the salesperson knowledge and therefore signed the contact (David Jones Ltd v Willis [1934] 52 CLR 110). However the photocopier was not fit for the purpose that Patricia described to the salesperson and she had to replace the lens and hire photocopier for 14 days.

The final implied term that has been breached is the term of correspondence with description under section 70 of the Trade Practices Act. This term is concerned with those matters that serve to identify the goods sold. The salesperson identified the photocopier as having only done 1000 copies and she thought it was last year's model, she also said that they had no complaints about that particular model. However the lens had to be replaced, and that usually only occurs after 200,000 copies, also Joe from Joe's Office Rentals told her that the photocopier was 5 years old and there had been numerous complaints about that model (Beale v Taylor [1967] 1 WLR 1593). As Patricia relied on what Shirley said and it convinced her to sign the contract to purchase the photocopier, the term of correspondence with description has been breached.

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The Trade Practices Act does not allow terms to be excluded under section 68. If any term of the contract that purports to exclude, restrict or modify or has the effect of excluding restricting or modifying sections of the Trade Practices Act is void.

Patricia will not be able to terminate the contract as the contact is already complete, she has the photocopier and Bob's Warehouse Pty Ltd has the $35,000. Also if she terminated the contract she would still have the decrepit photocopier and Bob's would still have the money.

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However she may try to rescind the contract for misrepresentation, as Shirley misrepresented the facts by stating that the photocopier had only done 1000 copies, she thought it was last years model and that there had not been any complaints about that model. These misrepresented statements induced Patricia into buying the photocopier; therefore she may rescind the contract.

Rescinding a contract means that the parties involved are returned to the position they were in before the contract was formed. So Patricia would return the photocopier to Bob's Warehouse Pty Ltd and Bob would return Patricia's $35,000 as well as the $10,000 for the new lens and the $1400 for the hire of the other photocopier from Joe's Office Supplies. comment However since section 52 of the Trade Practices Act was enacted rescission has become less important and the courts may be reluctant to grant it as a remedy.

The other option that Patricia has is to sue for damages, which is the most common remedy granted. The losses must be caused by the breach of the contract and the plaintiff has a duty to mitigate losses. Also the losses must not be too remote, which means that the losses must either flow from the breach according to the usual course of things or be losses that D was aware of prior to the contract (Hadley v Baxendale [1854] 156 ER 145)

The damages that Patricia could sue for in this case is the $10,000 for the new lens as she bought the photocopier under the misconception that it had only done 1000 copies. She should not have had to buy a new lens and therefore Bob's Warehouse should cover those damages as they are caused by the breach of the contract and they flow from the breach in the usual course of things.

The hiring of the photocopier from Joe's Office Supplies for 14 days at $100 a day amounted to $1400 worth of damages. Patricia could sue for these damages as the hiring of the new photocopier was caused by the breach in the contract. Patricia told the salesperson of her business in copying theses and the requirements that she needed in a photocopier so Bob's Warehouse was aware of the losses that would be caused by the faulty photocopier.

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Finally Patricia may with extreme difficulty be able sue for damages for disappointment and distress (Jarvis v Swan Tours Ltd [1973] 1 QB 233). Courts have generally been reluctant to grant damages for disappointment and distress in commercial cases.

Patricia may attempt to prove that she was extremely distressed when she received a $50,000 contract from the university's business faculty and had to find other means to be able to honour that contract. Also she may have been distressed when she found out she had to pay $10,000 for the lens also that the photocopier was actually only approximately worth $15,000. The most difficult thing in granting damages for distress is the amount of damages to be awarded. In this case I would believe that only $20,000 could be granted as that is the difference between the estimated price of the photocopier and the price Patricia paid.

The best step for Patricia would be to rescind the contract, however as I said earlier that is sometimes not granted. The next step would be damages however Patricia would be unlikely to receive damages for her distress so she would receive $11,400 for the lens and the hiring of the other photocopier.

Part 2

Under the second situation, where the photocopier was purchased for $45,000 the Trade Practices Act will not apply as the good was over $40,000 and is not of a type that is normally used in household or domestic use. As this is a non-consumer contract Patricia may try to use the Goods Act however section 61 states that exclusion clauses are permitted in non-consumer contracts as businesses are normally on equal terms and do not need protection.

comment The only legal rights available to Patricia under these circumstances are to attempt to sue for misrepresentation. The first step would be to see which type of misrepresentation she could sue for. The two areas are the torts of deceit and negligence.

comment Fraudulent misrepresentation is extremely difficult to prove. There are three steps involved; step one is that a false representation of fact was made (Smith v Land and House Property Corp [1884] 28 Ch D 7). Under the circumstances in this situation a false representation was made as Shirley stated that the photocopier had only completed 1000 copies when it had more likely completed 200,000.

Step two is whether the representation was intended to and did induce the representee to act (Holmes v Jones [1907] 4 CLR 1692 High Court). This is one of the harder steps to prove, as we do not know whether Shirley actually used the false fact of the photocopier having only done 1000 copies to induce Patricia into buying the good. However as Shirley is a salesperson in the store and more than likely knew how many copies the photocopier had done she probably did use those false facts to induce Patricia.

The final step is whether the representor made the false representation knowing it to be untrue, or was reckless as to whether it was true or not (Derry v Peek [1889] 14 App Cas 337). Shirley may not have known whether the number of copies it had done was true but she recklessly did not know and she should have known. Therefore Shirley and Bob's Warehouse were fraudulent in the sale of the Photocopier.

Under the tort of deceit it is not possible to exclude liability as a person is not entitled to take advantage of his or her own deceit.

However due to the difficulty in proving fraud Patricia may attempt to prove negligent misrepresentation. There are also three steps in proving negligence, step one is whether the representor owed a duty of care. A duty of care was originally only owed for the chance of the goods harming somebody physically or mentally. However since Shaddock and associates Pty Ltd v Parramatta City Council (1981) 55 ALJR 713, a purely economic loss can also be considered in the duty of care.

Under Patricia's circumstances a duty of care was owed as Bob's Warehouse was told that she was in the business of copying theses and needed a photocopier that could do specific jobs. However the photocopier was sold in a poor condition that caused Patricia to buy a new lens for the photocopier and also to have to hire a new photocopier at a cost of $1400 for 14 days.

The second step is the standard of care owed. The standard of care is what a reasonable person in the community would expect be owed knowing the qualifications and means of the person or company. Under these circumstances Bob's Warehouse Pty Ltd specialises in photocopiers. Therefore they should know how many copies the photocopier had and its capabilities, also exactly what model it was.

The final step is the remoteness of the damage. Under the circumstances in this situation Patricia could get damages for the lens and the hiring of the photocopier, so a total of $11,400.

However there is also a possibility that the exclusion clause at the end of the contact could remove Bob's Warehouse Pty Ltd duty of care in this case.

Patricia's best course of action would be to attempt to sue for fraudulent misrepresentation, as the exclusion clause will not be included. Also if the facts of the case point toward deceit there is a much higher chance of winning the case and receiving damages. The problem with negligent misrepresentation in this case is the exclusion clause.

The facts of the case point toward a fraudulent misrepresentation due to the false representation of the number of copies that the photocopier had completed, this induced Patricia into the contract so deceit was involved. If I was advising Patricia on the legal rights that she had and what course of action to take I would use fraudulent misrepresentation.

The remedies that she would receive under this situation would be damages for the lens and the hiring of the other photocopier, so a total of $11,400.

comment [Lecturer's Overall comment]

Concise

This is good. In a problem-based assignment there is no need for a lengthy introduction. The parameters of the ensuing discussion have already been set by the facts of the case.

TPA s 4 B

There should be some reference in the paragraph to the fact that the goods were not bought for resale.

Is this correct?

The facts do not support such an unconditional statement. On the contrary, they indicate that there has probably been a breach of an express warranty. This whole paragraph should be deleted from the paper.

Good

The discussion on the implied terms is good. In particular the student has discussed the facts of the problem. The student has correctly referred to the relevant sections of the Trade Practices Act. The student referred correctly to cases that support his argument.

"the implied"

Section 68 of the Trade Practices Act does not apply to all terms within a contract. It is only relevant to the terms 'implied' by virtue of the Trade Practices Act (i.e. merchantable quality, fitness for purpose, correspondence with description).

TPA s 75A

The TPA s75A gives the buyer the right to return the goods. Patricia did not need to rely on rescission for misrepresentation.

Relevance

The final sentence of this paragraph is irrelevant. Generally the student has avoided the trap of quoting passages from text books. This is one case, however, where he has paraphrased a sentence from the text book without considering whether it adds anything to the argument he is developing.

An unlikely remedy

Damages for distress in this context are so unlikely that the student must consider whether it is worthwhile even mentioning it. However, it should be said that the student's comments are not incorrect.

Why not breach the warranty?

The conclusion is not correct. The exemption clause does not exclude liability for all breaches, only breaches of conditions (statutory or otherwise). Therefore, Patricia could seek damages for breach of a warranty. The student failed to examine the exemption clause closely.

Good, but why not s 52 TPA?

The discussion on fraud and negligence is good. However, if fraud and negligence may apply, why wouldn't s 52 TPA?

Lecturer's overall comment

The approach to answering the assignment is very good. It is well planned. It concentrates on the facts of the problem. The critical difference between Part 1 and Part 2 of the question (i.e. the application of the Trade Practices Act) is clearly articulated.

But, there are three mistakes that prevented the student from obtaining a higher mark:

  • Part 1 - no discussion on the remedy provided under the TPA s75A;
  • Part 2 - no consideration given to the possibility of seeking damages for breach of an express warranty;
  • Part 2 - no discussion on the possibility of a breach of s 52 of the TPA.
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