| School of Applied Business Bachelor of Business |
ACTY 5320 Law of Business Obligations
Assignment Two
Semester One 2020
| Semester: | Semester One 2020 | ||
| Date issued: | 28 April 2020 | ||
| Due date and time: | |||
| Delivery: | Submit a printed copy to your lecturer directly during the class Submit an electronic copy to Turnitin in your Course Moodle site. Failure to do this may result in a zero mark. | ||
| Total marks: | 50 marks | ||
| Weighting: | 25% of course | ||
| Instructions: | Answer all questions Complete this cover sheet and attach itto your assignment. Write your name & ID number on a copy of the Marking Schedule and attach it to the end of your assignment This is an individual assignment and must be your own work. Collusion, copying or plagiarism may result in disciplinary action. We advise that you keep a copy of this assignment. No plastic covers please – simply staple in top left corner. This assignment is also to be submitted to Turnitin | ||
| Student Name: | (Please underline family name) | ||
| Student ID No: | |||
| Lecturer: | |||
| Student declaration: | I confirm that: This is an original assessment and is entirely my own work. Where I have used ideas, tables, diagrams etc of other writers, I have acknowledged the source in every case. This assignment has not previously been submitted as assessed work for any academic course. | ||
| Signature of student | Date |
Question 1 (Learning Outcome Three) 10 Marks
Contract – offer and acceptance
Application Question (ILAC)
Jean had often admired the house on the corner of her street. It was a very grand house, having been built in the 1920s. Of particular interest to Jean was that the house had, many years ago, been owned by her grandparents. Jean spent a lot of time at the house as a child, so it was a significant place to her.
While walking her dog one day, Jean saw and got chatting with the current owner of the house, Diane. Diane mentioned that she had, a few days ago, been in initial discussions with a local real estate agent to put the house on the market. Excitedly, Jean said that she would be very interested in buying the house and asked Diane what sort of price she wanted for it. Diane said that she really did not want to sell it for any less than $1.4 million. Jean immediately knew (although she did not say out loud to Diane) that she could not afford that sort of price. However, Jean was aware that her cousin, Sophie, would also be interested in buying the property, as Jean and Sophie had often discussed that if the opportunity arose they could buy the property jointly and live there together, as it was a spacious house. So, Jean said to Diane that she could consider that sort of price but would need to check a few things first.
Diane said that her lawyer had prepared for her a form of agreement to use for negotiations, with the purchase price left blank. She went into the house to get it and she brought it out for Jean with the sum of $1.4 million which Diane had inserted for the price. Diane signed the document and gave it to Jean and explained that she would happily accept $1.4 million from Jean, because Diane would like a quick sale with no agent’s commission or marketing fees to pay.
Jean told Diane that she would have to take the document away for consideration and that she would let Diane have a response by no later than 5pm the following day.
When Jean got home she made a lot of phone calls, including to Sophie and her lawyer. Jean’s lawyer and Sophie were both happy with the proposal and by the next morning Jean was confident she could sign and return the agreement to Diane.
However, during the course of Jean’s phone discussions, she had spoken to a real estate agent (Janice) to try and ascertain local values. Janice very quickly worked out which house was being sold and went to see Diane late in the afternoon with an offer of $1.6 million on behalf of a very important client who had been looking for a property like this one for some time. Janice told Diane that the offer of $1.6 million needed to be accepted no later than 10am the next day.
By 10am the next day, Diane had accepted the offer of $1.6 million that Janice had put forward. Diane asked Janice to let Jean know that the house had been sold.
Janice did not want to speak to Jean personally, as she knew Jean would be upset, so Janice asked her personal assistant to deliver the news to Jean by telephone.
Once she heard the news, Jean immediately went to Diane’s house to deliver the signed agreement for $1.4 million. Diane was embarrassed when she saw Jean but explained to Jean that Janice had made her an offer she simply could not refuse.
Jean was very upset as she believed that Diane was obliged to sell the house to Jean.
Question
Is there a valid contract between Jean and Diane?
State the relevant legal rules with case law.
Use the ILAC method.
Question 2 (Learning Outcome Three) 10 Marks
Contract – consideration
Application Question (ILAC)
Queens Property Limited (QPL) is a property developer operating throughout New Zealand. Its current business plan is to take advantage of the new Unitary Plan zones in Auckland and build medium- to high-density apartment buildings.
QPL’s current project is an apartment block in downtown Auckland. It sold 80 apartments off the plans (ie, before construction had started) in 2016. These pre-sales were sufficient for QPL to get finance for $40 million for the construction work. The five directors and shareholders of QPL guaranteed the finance and provided security over their homes and other assets. The terms of the finance agreement included that if the construction work was not completed by August 2020, the financier would be entitled to charge penalty interest and do a range of other things to protect its interests, including calling up the debt for immediate repayment and taking over the development.
In all its pre-sale agreements with purchasers, QPL had included a clause that said if the apartments were not completed by August 2020, the purchaser could cancel the agreement and the purchaser would be entitled to the return of any deposit it had paid.
QPL contracted the construction work from Greenstone Construction Limited (Greenstone). Under its contract with QPL, Greenstone was required to complete the construction no later than 15 July 2020.
Construction of the apartment building commenced in 2017 and good progress was being made until early-2020, when a global pandemic took hold, creating all sorts of logistical issues for Greenstone, including supply chain issues for building materials. These issues affected all Greenstone’s construction projects, not just the QPL project. Greenstone sent a letter to QPL notifying QPL of Greenstone’s concerns.
Separately, the purchasers under the pre-sale agreements were nervous the property market was going to slump and they might not be able to get the necessary finance to complete their purchases. QPL’s sales office was taking multiple calls on a daily basis from worried purchasers about the progress with the construction and the impact of the pandemic. The sales office reported to the board of directors that it was very likely that if the construction work were not completed in time, a large number of purchasers would cancel, and the apartments would be very difficult to re-sell in the current economic climate.
QPL requested an urgent meeting with Greenstone and it was agreed in the meeting that if Greenstone could divert (away from its other construction projects) all building materials it had access to that were necessary to complete QPL’s project, so as to complete construction of the apartment building by the due date of 15 July 2020, QPL would pay Greenstone an additional $500,000 on completion of the apartment building.
Greenstone did indeed do this and used all its efforts to complete the construction work for QPL. As a result, the construction was finished in late-June 2020 which meant that QPL avoided any difficulty with its financiers and its purchasers. This also benefited QPL’s guarantors who had been very concerned about their personal liabilities.
After all Greenstone’s efforts, however, QPL delayed in paying the additional $500,000 for several months and eventually QPL’s lawyers sent a letter to Greenstone saying that:
- The agreement to pay an additional $500,000 was not enforceable because Greenstone was already contractually obliged to complete its construction work by 15 July 2020.
- In any event, QPL had calculated that the additional $500,000 was at least double the additional cost Greenstone would have actually incurred in getting the construction work completed which meant that the total consideration payable to Greenstone would be above market price.
Question:
Will Greenstone Construction Limited succeed in a claim for the additional $500,000 against Queens Property Limited? Cite relevant case law in your answer, using the ILAC method.
Question 3 (Learning Outcome Three) 10 Marks
Contract – capacity / minors’ contracts
ILAC and short answer questions
Richard Anderson is 17 years old and quite entrepreneurial for his age. He is a very good painter and wants to start a business involving painting designs and pictures on cars, vans and trucks. He needs special equipment to do this and also needs a place to paint the vehicles.
Albert Buildings Limited (ABL) owns a warehouse in Glen Innes which is currently unoccupied. ABL advertises it on TradeMe for rent. Richard sees the advertisement and rings the director of ABL. Richard explains what he wants to use the warehouse for and the director tells Richard that ABL, coincidentally, has some spray painting equipment ABL could make available for Richard to use. After some discussion, Richard signs a lease for the warehouse and the spray painting equipment. He agrees to pay $1,200 per week for the warehouse and the equipment.
Four months later, Richard is in financial trouble. The lease was too expensive and the spray painting he has done has been of low quality. The equipment is of no use as it is old and not suitable for painting cars or other vehicles. This was not evident when Richard signed the lease and is the reason why his painting has been of low quality. Warehouses (with equipment) nearby lease for $750 per week.
Required:
- Advise ABL of its legal position. Note all the applicable sections of Subpart 6 in the Contract and Commercial Law Act 2017. Use the ILAC format.
[7 marks]
- If Richard’s father had guaranteed the lease, what additional advice would you give ABL? [3 marks]
Question 4 (Learning Outcome Three) 10 Marks
Contract – misrepresentation
Short answers
Jacinta Chan was buying small health food shops in Auckland with a view to consolidating them, re-branding them and setting up a chain of health food shops. She spoke to Mr and Mrs Haigh about buying their health food shop in a shopping mall in Kohimarama. In a meeting, the Haighs gave Jacinta some papers containing the financial performance of their shop, including sales. The Haighs told Jacinta they were making about $750,000 in sales each year and pointed to this information on the papers they had handed to her. Jacinta said that sort of revenue fitted perfectly with her business plan. At the end of the meeting, Jacinta said she would review all the information and get back to the Haighs with any further questions. Two months later, Jacinta got back in touch with the Haighs and said she would like to buy the shop for $1.5 million. During these two months, a womens’-only gym and a private tuition company had moved out of the mall because a newer, fancier shopping centre had opened in Mission Bay. Unfortunately, the Haighs’ shop relied on a lot of foot traffic from the gym and tuition company as these were just the sort of customers that were attracted to health foods and the premium price tag that went with them. By the time Jacinta had got in touch with them, the Haighs’ revenue had dropped by about 25% from what it had been a year ago. The Haighs did not mention any of this to Jacinta and Jacinta did not request any updated financial statements. The Haighs agreed to sell Jacinta the health food shop for $1.5 million and they signed a written contract. The contract did not contain any warranties or other information about the annual revenue of the Haighs’ shop.
A week after the contract was signed, but before Jacinta was due to pay the purchase price, another tenant in the shopping mall got in touch with Jacinta to invite her along to a meeting of the Tenants’ Association. After asking some questions, Jacinta began to realise that the Haighs’ shop may not be worth what she thought it was. She asked to see some recent sales figures and realised that the business was only worth $500,000.
Required:
Answer the following questions with specific reference to the law relating to misrepresentation and provisions of the Contract and Commercial Law Act 2017 that relate to contractual remedies (found in Subpart 3 of Part 2 of the Contract and Commercial Law Act 2017).
- Discuss whether there has been a contractual misrepresentation and, if there has been, the remedies available to Jacinta. In your answer refer to relevant sections of the Contract and Commercial Law Act 2017 and to relevant case law. [6 marks]
- Outline the circumstances in which the remedy of cancellation under the Contract and Commercial Law Act 2017 is available. [4 marks]
Question 5 (Learning Outcome Four) 10 Marks
Fair Trading Act 1986
Short answers
Betty manages a busy butchery in Westmere called “Betty’s Butchery Limited”. Sometimes there is a shortage of cheap meat from New Zealand, so Betty imports meat from Australia to sell instead. Betty knows the Australian meat is not very good quality compared to New Zealand meat.
Betty’s Butchery Limited is less profitable than in previous years. Betty investigates this and realises that a large number of her customers have started buying their meat from another butchery in Ponsonby (called “Ponsonby Meats Limited”), which advertises its meat as being New Zealand farmed meat.
Betty decides to re-label her Australian meat as New Zealand meat. She starts selling the Australian meat on this basis.
Required:
- Does the Fair Trading Act 1986 apply to this situation? Refer to relevant sections of the Act in your answer [4 marks]
- Identify any breaches of the Fair Trading Act 1986 committed by Betty’s Butchery Limited. Refer to relevant sections of the Act in your answer. [4 marks]
- Which organisation can Ponsonby Meats Limited complain to AND what is the maximum penalty that can be imposed against Betty’s Butchery Limited? Refer to relevant sections of the Fair Trading Act 1986 in your answer. [2 marks]
ACTY 5320 Law of Business Obligations
Assignment Two Semester One 2020
| Question 1 | Contract – offer and acceptance ILAC Question | 10 marks |
| ILAC Question – Contract – offer and acceptance Issue: Correct statement of the issue (1 mark) Law: Correct principles of law clearly set out and explained well, with reference to relevant case law and/or legislation (5 marks). Application: Principles of law systematically applied to the fact situation. Good explanation of application in clear and simple language (3 marks). Conclusion: Correct statement of conclusion (1 mark). | 10 marks | |
| Question 2 | Contract – consideration ILAC Question | 10 marks |
| Question 2 | ILAC Question – Contract – consideration Issue: Correct statement of the issue (1 mark) Law: Correct principles of law clearly set out and explained well, with reference to relevant case law and/or legislation (5 marks). Application: Principles of law systematically applied to the fact situation. Good explanation of application in clear and simple language (3 marks). Conclusion: Correct statement of conclusion (1 mark). | 10 marks |
| Question 3 | Contract – Capacity / minors’ contracts ILAC Question and Short Answer | 10 marks |
| Question 3(a) | ILAC Question – Capacity / minors’ contracts Issue: Correct statement of the issue (1 mark) Law: Correct principles of law clearly set out and explained well, with reference to relevant case law and/or legislation (2 marks). Application: Principles of law systematically applied to the fact situation. Good explanation of application in clear and simple language (3 marks). Conclusion: Correct statement of conclusion (1 mark). | 7 marks |
| Question 3(b) | Marks out of 3 for correct identification of the section in Subpart 6 of the Contract and Commercial Law Act 2017 that deals with a guarantee of a minor’s contract (1.5 marks) and the impact of that section on the contract between Richard and Albert Building Limited if it were guaranteed (1.5 marks) | 3 marks |
| Question 4 | Contract – misrepresentation Short answers | 10 marks |
| Question 4(a) | Marks out of 6 awarded for correct analysis and advice on Jacinta’s rights against the Haighs for misrepresentation (4 marks) and remedies she might be awarded by the Court (2 marks). | 6 marks |
| Question 4(b) | Marks out of 4 awarded for clear outline of the circumstances in which the remedy of cancellation under the CCLA 2017 is available. | 4 marks |
| Question 5 | Fair Trading Act 1986 Short answers | 10 marks |
| Question 5(a) | Marks out of 4 awarded for identifying (2 marks) and explaining (2 marks) the application of the FTA. | 4 marks |
| Question 5(b) | Marks out of 4 awarded for identifying (2 marks) and explaining (2 marks) breaches of the FTA | 4 marks |
| Question 5(c) | Marks out of 2 awarded for identifying the organisation that Ponsonby Meats Limited can complain to (1 mark) and maximum penalty with reference to correct section (1 mark). | 2 marks |
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