LST5CCL: Contract between Lara and Ogie’s Car Sales Pty Ltd - Demo Model BMW’s - Law Assessment Answers

Assignment Problem

Lara has always dreamt of owning a convertible and has decided to purchase one as her first car.

In the Age newspaper she sees a full-page colour advertisement for Ogie’s Car Sales Pty Ltd which stocks used and demo model BMW’s. The advertisement states:

“Used car sale. Unbeatable offers on 1-year old models. Low kilometres. 12-month warranty.”

The featured vehicles include 3 used BMW Convertible’s priced at $25,000 drive away.

On Saturday morning she goes to take a look. She takes a liking to a white BMW convertible, and has a good look around the outside and inside. She notes with satisfaction that the odometer shows 11,000. The salesman tells her: “Personally, I think this one is the best of the lot.” Lara asks Ogie about previous ownership of the car and Ogie replies: “The car had only one previous owner.” Lara replies that she would like to buy it, but the best she can do is $22,500 cash. He replies: “Alright. Come inside.”

In the office Ogie prepares a sale document with a description of the vehicle and a cash sale at $22,500 and gives a copy to Lara, which she reads. They agree that Lara will return with payment within 7 days. There is no mention of warranty. Lara signs the sales document.

Next Wednesday, having visited her bank, Lara returns with a bank cheque for $22,500 and collects her new car. There is a folder on the driver’s seat containing the handbook and previous service record, which she puts in the boot.

Three months later Lara finds that her car is slipping out of gear. Next morning she drops it off with Max, her mechanic. Max calls her that afternoon. The automatic clutch of the BMW is badly worn and needs replacing. The total cost for the work is $2,500. From the handbook and service details Max discovered that the previous owner was a company, and the BMW was a fleet car. At the time of the sale it had actually covered 175,000 kilometres.

Problem-Based Questions

QUESTION 1

Is there a contract between Lara and Ogie’s Car Sales Pty Ltd? Refer to relevant case law and principles in answering this question.

QUESTION 2

Lara tells you that had she known about the true condition of the car, she never would have bought the car, and asks you to explain the legal situation to her. What rights does Lara have under the common law? Refer to any applicable case law and prinicples in answering this question. What remedies can Lara obtain under the common law?

QUESTION 3

Does Lara have any rights under the Australian Consumer Law (Competition and Consumer Act 2010 (Cth), Schedule 2)? Discuss any applicable legislative provisions and relevant case law. What remedies can Lara obtain under the Australian Consumer law?

Assignment

Issues

1. Is there a contract between Lara and Ogie’s Car Sales Pty Ltd?
2. What rights does Lara have under the common law? What remedies can Lara obtain under the common law?
3. Does Lara have any rights under the Australian Consumer Law (Competition and Consumer Act 2010 (Cth), Schedule 2)? What remedies can Lara obtain under the Australian Consumer law?

Applicable Law

A contract is a lawful document that lay down mutual rights and obligations amid the parties. It is an agreement which has approval of law and comprises of offer, acceptance, intention, consideration and capacity as its basic ingredients.

To make a valid contract, an offeror must make an offer which must be duly accepted by an offeree without any variations. In Pharmaceutical Society of Great Britain v Boots (1953), advertisements are construed as invitation to treat and not an offer. Thus, any party relying on the advertisement must make an offer to e advertiser which when confirmed results in an agreement. However, if any variation is included while making an acceptance then it is a counter offer which cancels the original offer and does not makes a valid contract. The agreement must be supported by consideration, intention and capacity to make it enforceable in law.

Every lawful contract makes the parties binding to comply with the contractual terms. However, a valid contract can be rescinded at the option of one of the parties if it is based on misrepresentation or misleading/deceptive information.

In Common Law, any untrue declaration (present or past) made by one person to another with an expectation to convince such other person to enter into a contract with him is nothing but a misrepresentation. The main elements to constitute misrepresentation are:

1. The untrue declaration must not be of future but related to past or present.
2. The declaration must be of a fact and not of opinions.
3. The declaring party must have knowledge that the statement is untrue and intent to induce the other party to form a contract;
4. That the relying party must actual form a contract based on such declaration.
5. It must be the untrue declaration that must be the basis for contract formation amid the parties.

In common law the relying party who enters into the contract based on misrepresentation has right to cancel the contract and claim damages.

Also, when statutory law is applied, then, the law that is applicable in the given situation is section 18 of the Australian Consumer Law. Section 18 governs the transactions which are influenced with misleading behavior and deceptive conduct of the parties.

As per section 18, no person should engage in any misleading or deceptive activity. The main requirements are:

1. The misleading conduct must be related to the activity that must be of commercial nature.
2. The conduct of the person who deceive/mislead the other party can be either through representation or oral communication or in written form. For instance, if no information is provided by the defaulter to the relying party, then, it is nothing but giving misleading/deceptive information.
3. If the declaring party knowingly deceives the other party by concealing the truth then such conduct comes under the preview of section 18.
4. If the relying party is well known of the misleading conduct and still enters into the transaction with the declaring party, then, the conduct is not misleading.
5. Even if the intention of the declaring party was not to deceive but the relying party suffers due to the statements of the declaring party then also the same is covered under section 18 of ACL.
6. The declaration must be of past or present. But as per section 4 of ACL if the declaring party makes any statement about future which he knows to be untrue then such statement is misleading statement.

The suffering party in case of breach of section 18(1) can claim damages as per section 236 of ACL, can get ancillary orders from the court under section 243(2) of ACL, can get the money refunded or get the declaration of contract as void, can get injunction orders as per section 232 to 236 of ACL.

Application of law

Lara based on the advertisements (invitation to treat) and her observation makes an offer to Ogie to buy the car @$22,500 cash. Ogie confirms the offer without any variations, thus, it results in a binding agreement amid them. Further the agreement is supported by a consideration of $22,500 cash and the parties are capable and legally intent to abide by the contract terms. Thus, there is a valid contract amid the parties.

Now, it is important to understand whether the contract so established can be rescinded under common or statutory law in Australia.

As per the advertisement lay down by Ogie, the company was offering “Used car sale. Unbeatable offers on 1-year old models. Low kilometres. 12-month warranty.”

Lara likes a white BMW convertible. She checks the car and is satisfied with the results of odometer which shows 11,000 kilometres which in reality was 175,000 kilometres. The fact was no disclosed by Ogie and is rather misrepresented. Also, Ogie represented the car as a convertible which in reality was a fleet car.

Also, an opinion was made by the seller that “Personally, he think this one is the best of the lot.”

It is important to submit that in common law opinions are not considered as misrepresentations.

Further, a representation was made by Ogie that “The car had only one previous owner.”, which was true but the facts were tainted as the handbook and previous service record establishes that the previous owner was a company.

Also, the sales contract has no warranty which was also agreed by Lara as she affirms with the sales document after reading the same.

Considering all the facts above, Ogie misrepresented that the car only drove 11000 kilometres and that it was a convertible car. If Lara would know about the true condition of the car, she never would have bought the car. Ogie induce her to enter into a contract with her. Thus, Lara has full right to cancel the contract under common law.

Lara has also right under section 18 of the Law to cancel the contract as the contract was induced with misleading information and deception was conducted by Ogie on Lara. Even if Ogie did not intent to induce Lara, since loss is caused due to misleading and deceptive information provided to her, thus, she can avail remedies under the Australian Consumer Law.

Conclusion

It is thus concluded that there is a valid contract between Lara and Ogie, but Lara has full right to cancel the contract both under common and stature law as the contract is based on misrepresentation, misleading and deceive information.