ACCT 3151 Business Law

Second Assignment (25%)

Instructions: -

1. Answer all questions and sub-questions below.

2. Please observe the word limits as indicated for each question and sub-
question. Failure to do so may result in a reduction of your mark.
3. You are advised to do research when answering questions and make
references to relevant court cases and/or materials when appropriate.
4. You are required to comply with the rule of academic honesty. You must
acknowledge the source of ideas that you have referred to and you cannot copy,
word by word, from any works of other people.
5. You may submit a group assignment. Each group shall consist of no
more than 5 students. You may form a group with students of any ACCT 3151
class in this semester. All the students in a group will be awarded the same mark.
6. You may also do the assignment by yourself and submit your answers
individually.
7. Remember to indicate your name, student number and section number on
the answer script.
8. The due date of this assignment is 3/4/2017 (by 5:00pm) (Monday of the 12 th
teaching week). You must submit your answers electronically to
http://www.cuhk.edu.hk/veriguide. In case of group assignment, only one copy
needs to be so submitted. After you get a receipt upon submission, kindly fix it on
the hard copy of your answers and drop your work into the assignment collection
box marked with ACCT3151 at level 2, CYT Building. All students have to sign on
the declaration form no matter they do the coursework individually or by group.

Question One (10 Marks) (word limits: up to 1,300 words)

Peter, a Chinese, is the proprietor of a small retail shop selling items for use in the daily life. He
can speak Chinese but he cannot read Chinese (doesnt impact validity of exemption cause).
On 1st March, he visited the premises of company X (he had bought a table from company X on
behalf of his shop on 1st January and it was the second time he visited company X) (Peter is not
a frequent customer), a major supplier supplying all kinds of items for use in the daily life. The
annual turnover rate of company X was many more times of that of Peters shop. (Peter is the
weaker party - unequal bargaining power)

- PTO
On this occasion, Peter made an inquiry from May, an employee of company X, at the service
counter concerning a cabinet and some chairs which were for sale (the relevant prices of the
said items were displayed). Peter would like to buy the cabinet to store the office files in his
shop and to buy the chairs to sell them to his customers. He asked for a 10% discount from
May and she agreed to this. Peter happily told May that he would buy the items. May told Peter
to read the policy of company X which was displayed at the service counter. There was a notice
(exemption cause) displayed in the service counter stating, in Chinese and in large print, that
there is no refund for any problem of our products (the notice was there also on 1st January)
(but Peters not a frequent customer). Peter then paid the money to May (Peter and May spoke
to each other in Chinese during the transaction). The items that he bought from company X
were available from many other suppliers which did not use exemption clauses in their trade.
(Not an unconscionable contract)

Peter was delivered the cabinet and the chairs at the agreed delivery date later. He found that
the lock of the cabinet did not work (not merchantable quality) while the colour of the chairs was
different from the colour of the same chairs shown to him on 1 st March. Peter immediately
demanded for refund from company X but it refused based on the above exemption clause.

Discuss whether Peter can demand for refund from company X.

In this case, we should consider three major questions, whether company X breach in contract terms,
whether Peter is bound by the exemption clause(s)/ whether the exemption clause(s) is/are contract terms
and whether the exemption clause(s) is/are valid (if the exemption clause(s) is/are contract terms).

1) Whether company X breach in contract terms

Under the contract terms implied by law in the sales of goods contracts as laid down by the Sale of
Goods Ordinance:
(a) The goods are of merchantable quality (section 16)
(b) The goods are fit for their particular purpose(s) indicated by the buyer (section 16), and,
(c) The goods correspond to their description and sample (to be a contract term the description has to
be a clearly made statement).

Peter bought a cabinet that the lock of it did not work which means the cabinet cannot conduct its
function normally. In case, company X breach the implied terms of Sales of Goods Ordinance which
the cabinet is not of merchantable quality and is not fit for its particular purpose.

Besides, the chairs which are of different colours may also breach the implied terms as they do
not match with the description and sample. See Arcos Ltd v EA Ronaasen & Son [1933] AC 470, in
which the court held that the purchasers were entitled to reject the goods under s.13 as they were not
as described [1]. However, whether company X would breach the implied terms depends on the colour
difference is marginal or not (e.g. from black to red in colour is not marginal, from red to dark red is
marginal).
 The courts allow a marginal difference with the relevant description if the difference has
insignificant impact on the buyer. Refer to Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR
989, a buyer can only reject goods where they fail to conform to description in that they are a
different kind of goods than what the buyer contracted to buy [2]. If Peter had pointed out that
he only accept ,say red chairs, company X would breach the implied terms when the colour of chairs
are not red, say blue, in colour. If not, company X would not breach the implied terms.

[1] http://www.e-lawresources.co.uk/Arcos-v-Ranaason.php
[2] http://casebrief.me/casebriefs/reardon-smith-line-v-yngvar-hansen-tangen/

- Cabinet which didnt work: Breach of implied terms of sales of goods ordinance
good is not of merchantable quality, its not fit for its particular purpose (it cant be used).
Chairs which are of different colours: Also breach of implied terms because they dont
match with the descriptions and sample (debatable; depends on whether colour
difference is marginal or not)
- Are there any breach in contract terms other than the implied conditions? Seems
not.
- Peter does not understand exemption clause because he doesnt understand the
language. May didnt realise this at the point of transaction: See Thompson v London
Midland and Scottish Railway Co. [1930] 1 KB 41 - Peter is still bound by the clause
- Is Peter a consumer? Definition of consumer: According to its section 4,
consumers are those people who bought goods intended for ordinary domestic use or
made the relevant contract not in the course of a business. See R & B Custom Brokers
Co. Ltd. v United Dominions Trust Ltd. - Peter is a consumer for the cabinet, but a non-
consumer for the chairs.
- See http://www.hklii.hk/eng/hk/legis/ord/71/s4.html for Section 4 of Control of
Exemption Clauses Ordinance
- Is Peter a consumer of the chairs? Debatable. On one hand, Peter is a consumer of
the chairs because he is not a regular customer of company X, and the sales of the chair
to his customer may not constitute an essential part of his business. On the other hand,
Peter is a non-consumer of the chairs because the chairs might be an essential part of his
business dealings with an important customer (for example, if the customer requested for
a specific kind of chair from Peter)
- Exemption clauses are usually invalid if consumers are involved. But the
exemption clause in this case is not reasonable
- (Parts in red are a record of what the Prof said during class. Might not make
sense!)
- Common law 4 tests: No need to satisfy all of them! Signing of document or
notice? Notice. Hence need not satisfy signature test. But need to satisfy timing test,
reasonable notice test (but no need to ensure party is aware of exemption clause only
 need to make sure to have put enough effort to draw attention to the clause). No need to
go through prior consistent course of dealings test this test is highly unusual (Prior
consistent course: No exemption clause in this instance, but consistently presence of
this clause in previous dealings. Frequency must be reasonably high. Doesn't apply here
because Peter is a new customer)
- Peter demands for refund (ie. rescission). Hence refer to laws on rescission.
Whether this is allowed depends on whether the exemption clause (an excluding clause
in this case) is valid. If clause is not valid, cannot get money back. No refund notice =
exemption clause (does not have to use exact wording). Ie. Clause is valid (go through
the common law control and legislation control 2 steps). Cannot rescind contract.

Question Two (13 Marks) (word limits: up to 1,500 words)

Susan, who just finished her university study, has sought advice from Jacky, a senior classmate
of her when she studied at the university, from time to time on study matters (Jacky is a few
years older than Susan and he is excellent in study). Jacky is now working for a private
educational institution which offers many postgraduate courses. On 1 st June, Susan told Jacky
about her current work. She asked Jacky as to what postgraduate course she could study
which could help her career development. Jacky introduced course A offered by the institution
to her. He told her that course A suited her career development very well (Misrepresentation:
untrue statement. But is this a statement of fact or statement of opinion?). Trusting Jacky,
Susan enrolled in course A on 1 st July. She then found the details of course A were not so
relevant to her work while course B offered by the same institution was much more relevant to
her work. In addition, the fee for course B was much cheaper than the fee for course A. Jacky
in fact knew about course B but he recommended course A to Susan in order to help his own
career development in the institution (the institution was more concerned with the promotion of
course A than the promotion of course B). Susan could have studied the details of course A
(does this matter?) and those of course B in the website of the institution before she enrolled in
course A but she had not done so.

Discuss whether Susan can cancel the enrollment in course A. Mention all legal arguments that
she may rely on.

Issue: Influence of Jacky on Susan. If Susan wants to cancel enrollment (enrollment itself is
signing of a contract), what is the usual legal ground? Appeal to invalidity of clauses, ie. the four
vitiating factors. Just need to establish one to cancel the contract. Here: Most likely either
misrepresentation or undue influence (distinguish them)

- Statement of opinion because Jacky did not mention any details of the courses?
- Intention to make a fraudulent misrepresentation statement because course A
yields to a higher profit and the institution concerns more the promotion of it then course
B.
- Could be negligent misrepresentation. However, Jacky had studied well the same
major subject and become an experienced staff to provide suitable postgraduate
courses. He may not be able to prove reasonably his belief in the truth of statement.
 - No innocent misrepresentation as there is no third parties.
- Susan did not have the duty to find out whether the information provided by
Jacky was true or not. See Redgrave v Hurd (1881) 20 Ch D 1.
- Can Susan cancel her enrollment and get a refund? There are two possible
situations here. Assuming that Susan has yet to attend the course, then yes, she can
rescind the contract because (a) She did not affirm the contract (ie. go for classes) after
enrollment (b) The time lapse isnt that long (c) its possible to restore substantially the
original position
- Assuming that Susan has already attended classes before finding out about the
misrepresentation, then she might not be able to rescind the contract because: (a) A
reasonable time has lapsed (b) its not possible to restore substantially the original
position, and its not a case of total failure of consideration
- Susan can also rely on the argument that there has been undue influence upon
her decision to make the contract. No actual undue influence, but presumed undue
influence: Not a confidential relationship but Jacky is a superior party that has
knowledge on the courses A and B. Susan has enrolled to course A due to Jackys
influence, because Susan who frequently sought advice from Jacky on study matters at
the university both trusted and had confidence in Jacky in this matter. The contract was
manifestly disadvantageous to Susan due to the price difference and difference in
suitability between the two courses. No independent advice had been received from
Susan as well.
- A contract made because of undue difference is voidable, if the time that has
lapsed isnt too long
- So in conclusion, Susans best recourse for getting a refund is to (a) argue that
Jacky has misrepresented the course to her (b) argue that Jacky had undue influence on
her, and apply for a cancellation as quickly as possible to minimize the time lapse

- END