LAW OF CONTRACT: LAW 241 TUTORIAL PROGRAMME 2013

The tutorial programme provides you with an opportunity to practice and develop your legal analysis and writing skills exactly the same skills that are measured in the various assessment tasks in this course. The tutorial problems require you to apply general contract law principles and authorities to specific fact situations. This allows you to test your own understanding of those principles and authorities as the course proceeds and to practice and improve your skills in writing legal essays and opinions. You are expected to prepare for each tutorial thoroughly, in advance, and in writing. Your tutor may ask you to leave the tutorial if you have not prepared properly. You are strongly advised to prepare thoroughly, attend AND actively participate in all the tutorials in this course. Students who actively participate in the tutorial programme are much more likely to succeed in this course. TUTORIAL ROUND ONE 1 On her way to work, Marge decides to stop at corner dairy and buy a copy of the New Zealand Herald. There is a pile of newspapers lying on the bench outside the dairy. Next to the newspapers is a tin can with a slot in the lid and a sign that says PAY HERE. YOUR HONESTY IS APPRECIATED. She picks up a paper, drops $1.90 worth of coins into the slot, and starts walking away. At that moment, Homer, the owner of the dairy, comes out and tells her that those papers are reserved for his regulars. Before Marge has a chance to think, he takes the paper off her hands and hands her $1.90. Marge protests, but Homer tells her that these are his papers and his shop, and he can do with them whatever he likes. a) Advise Marge with reasons and reference to relevant case law whether she would have been legally justified in refusing to return the paper. b) Would your answer in (a) have been different if the pile of newspapers, tin can and sign had been placed next to the counter inside the dairy? Explain. c) Would your answer in (a) have been different if there was no tin can or sign, and the pile of newspapers was lying on top of the counter in the dairy? Explain. 2 Leila owns a maroon BMW that she is considering selling. Her friend Fry has shown considerable interest in the car and has twice offered to buy it. Leila has laughed these 1

offers off. She knows that Fry is an impoverished law student. Leila, Fry and Zoidberg go out drinking one night. The conversation inevitably turns to the BMW, with Fry insisting that Leila name her price. After several hours of pestering, Leila whispers in Zoidbergs ear, Lets have some fun with Fry. She turns to Fry with a deadpan expression and says OK, Fry Ill sell it you for $50,000 all in. Its a deal, cries Fry ecstatically. The rest of the evening is spent talking about other things. The next morning Fry turns up with a bank draft for $50,000. His grandfather died recently and left him with a sizeable amount of money. Leila is taken aback. When Fry demands the car keys, she tells him it was all a joke. Fry sues Leila for breach of contract.

a) Advise Leila. Assume that $50,000 is a reasonable price for the car, but Leila will not sell it to that prat Fry as a matter of principle. b) Would your legal advice in (a) have been different if: (1) Leila had named a price of $5,000 rather than $50,000; or (2) Fry had overhead what Leila said to Zoidberg. Explain. 3 On 14 March the price of a barrel of light crude oil on the world market is US$100. The following day it rises to US$104 as a result of tensions in the Middle East. New Zealand Petrol Products Ltd (NZPP), eager to secure a supply of oil from outside the Middle East, emails North Sea Oil Ltd (NSO) in London: Can you supply us with 50,000 barrels of light crude oil at US$104 per barrel? When is the soonest you can ship? NSO immediately emails back: We are prepared to supply 50,000 barrels of light crude oil at US$104 per barrel, subject to the usual industry payment arrangements. Shipment 19 March. Soon after the NZPP receives this email, tensions in the Middle East ease somewhat and the price of crude oil falls back to below US$100 per barrel. However, overnight the BBC carries an interview with Colonel Gaddafi in which he claims that he is an F-18, bro, just like Charlie Sheen. The international markets respond hysterically, and the oil price spikes to US$120 per barrel. The manager of NZPP telephones the manager of the NSO on the morning of 16 March and the following conversation takes place: NZZP: Im phoning to confirm my order of 50,000 barrels at US$104 per barrel, as per your email yesterday. NSO: Im sorry, but as of today, our new price is US$120 per barrel. NZZP: But we have a deal at US$104 per barrel. NSO: Youll have to pay our new price if you want the oil. Analyse this series of events in terms of offer and acceptance.

TUTORIAL ROUND TWO 2

Rambo Retail Ltd (RR) is an Auckland company dealing in second-hand weapons. RR obtains its stock from surplus weapons decommissioned and sold off from time to time by the New Zealand Defence Force. RR is approached by Sylvester Stone (SS), a retired police officer and self-styled soldier of fortune, who show a keen interest in RRs range of assault rifles. In March 2010 RR and SS enter into an agreement, in terms of which SS purchases RRs entire stock of Kaslotnikov assault rifles at $500 per rifle. SS immediately resells these at a considerable profit to General Bananarama, the leader of a small South Pacific state. RR and SS enter into a second agreement on 1 May 2010 in Auckland: 1 RR (vendor) hereby agrees to sell and SS (purchaser) agrees to purchase vendors total stock of operative Kaslotnikov assault rifles as they become available for sale. 2 This agreement shall remain in force until 1 May 2015. Purchaser shall have the option of renewing the agreement for a further 5 years from such date by giving 30 days notice to vendor. 3 The price to be paid per rifle shall be agreed upon by the parties from time to time. This price shall be based on the parties evaluation of the rifles at pre-delivery inspections, and shall not be lower than that determined in the parties March 2010 agreement. 4 Delivery shall be t purchasers Beach Haven warehouse at 3 monthly intervals, unless insufficient stock has become available for sale. 5 Cash prepayment of $100 per rifle to be paid by purchaser on inspection, balance to be paid in 6 equal monthly instalments after delivery. Two months after this agreement is signed, RR finds out about SSs arrangement and enters into direct negotiations with General Bananarama. RR informs SS that it has been advised that the agreement of 1 May is void for lack of certainty and RR will not be delivering any further rifles. SS issues proceedings for breach of contract. (a) Counsel for RR makes the following main submissions in court. Critically evaluate their accuracy, with reference to relevant case law: (i) Agreements to agree are not binding in law. (ii) On the facts of this case, RR and SS clearly did not intend to enter into a binding arrangement. (iii) The fundamental lack of certainty in this arrangement cannot be cured because the agreement does not contain a formula. Similarly, the agreement does not contain any machinery. (b) What is the likely outcome of this case? Explain. 3

(c)

(d)

Explain what the legal position would have been if clause 3 of the May 1 agreement had provided as follows: 3 The price to be paid per rifle shall be fixed at each pre-delivery inspection, after due consideration in good faith of prevailing trends in export markets for this type of rifle. Explain what the legal position would have been if the May 1 agreement had also contained the following additional clause: 6 Disputes or differences in respect of this agreement shall be settled by two arbitrators, one chosen by each party. Failing settlement by this method, disputes or differences shall be settled by an umpire appointed by such arbitrators.

TUTORIAL ROUND THREE 1 Whether consideration constitutes an anachronism which leads to injustice or is as fundamental to twenty-first century contract law as the Prince is to Hamlet, is a question which has yet to be definitively answered after more than one hundred years of debate. Arguably, developments in relation to the pre-existing duty, privity and the increasing importance of promissory estoppel, support the demise of the doctrine of consideration. However, its abolition should not be effected on a piecemeal, ad hoc basis without regard to the impact that such action may have on the doctrine more generally or other principles of contract law. Either, the doctrine of consideration should be retained (and refined so as to encompass the promise to perform or performance of a pre-existing contractual or public duty to provide goods and services or pay a sum of money), or it should be abolished in its entirety.
Karen Scott (from Sailors to Fishermen: Contractual Variation and the Abolition of the Pre-existing Duty Rule in New Zealand (2005) 11 Canterbury Law Review 201, 219

Critically evaluate the above statements, with reference to relevant case law. 2 Silvio is the managing director of the New Zealand branch of Itelia, a global telecommunications company that entered the New Zealand market in 2007. Silvios employment contract includes a stipulation that Itelia will provide Silvio and his wife Veronica with annuities of $100,000 each for 20 years after Silvio turns 65. Because of this stipulation, Veronica, who is 58 and has very high blood pressure, has never bothered to organize a superannuation policy or medical insurance for herself. In January 2011 Silvio and Veronica separate in unpleasant circumstances. Silvio asks the board of Itelia to vary his employment contract by cancelling the annuity to Veronica, and instead paying out a lump sum of $500,000 to his new companion, and 4

aspiring dancer named Ruby. Itelias accountants are very much in favour of this amendment, but the board is concerned about its legal ramifications. (a) Advise Itelia on its legal position. (b) Would your advice in (a) have been different if Itelia had already cancelled Veronicas annuity and paid out the lump sum to Ruby? Explain. TUTORIAL ROUND FOUR

Cain is a dentist. He works in a dental practice in Pakuranga, but dreams of the big time. He decides to set up his own practice, and approaches his brother, Abel, who owns several commercial properties, to find suitable premises. Abel has an ideal vacant set of offices in Queen Street. Abel tells Cain that he is willing to lease the offices to him for five years. The brothers orally agree on the rent to be paid, and shake hands on the deal. When Cain asks Abel whether he should get his solicitor to draw up a formal lease agreement, Abel says Listen, were brothers! Would I do you over? You have my word its yours until 2016! On the strength of Abels statement, Cain resigns from his current dental practice, hires a new receptionist, buys a second-hand Startolounger dental chair which costs $17, 500, and, convinced by independent studies suggesting that green has a calming effect on hysterical patients, pays Abel $2,000 to have the offices painted out from floor to ceiling in a fetching shade of peppermint. When Cain goes to collect the office keys from Abel, however, Abel tells him that he has found a much better commercial tenant, and that he therefore wont be leasing the offices to Cain after all. When Cain protests, Abel reassures him that the $2,000 Cain paid to Abel to have the offices repainted will be refunded immediately. Abel says Look, Im sorry, but its a dog eat dog world out there and I cant cut you a special deal just because youre my brother. Its not as if youve had to pay me a bond or any rent. Advise Cain whether he has any claims against Abel, what (if any) their chances of success are, and what (if anything) he may be able to recover against Abel.