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Commercial Law Assignment Case Study

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Hamid is a refugee from Afghanistan who was recently released from the detention centre in PNG and is currently living in Adelaide. While walking in Rundle Mall one day he was approached by Kathy who was selling internet access contracts for a newly formed internet company Speed Connect Pty Ltd. Hamid speaks very little English and Kathy is aware of this. Kathy explains the terms of the contract which is essentially that Hamid would be bound to a 2-year contract and if he breaks the contract any time before the 2 years he will incur a $1,200 penalty. The contract comes with a free Samsung tablet. Kathy uses some technical language to explain the terms to Hamid, aware that he doesn’t understand the full extent of the contract terms. There is a telephone translation service available, but Kathy chooses not to use this as this translation service usually takes twice as long. Kathy works on a commission basis. The more contracts she sells the more she earns. She wants to sign up this contract quickly as she is keen to sign up three more contracts before close of business. Hamid has been thinking of getting internet connection as he wishes to Skype his family back home in Afghanistan and also to do a free on-line English course. He is under the impression that he can terminate this contract anytime he wants without any penalty and all he has to do is give Speed Connect one month’s notice and return the tablet. Three months into the contract Hamid finds that he is unable to cope with the financial demands of this contract as there are many hidden costs which he was unaware. When he contacted Speed Connect to give his termination notice he was shocked to learn that there is a $1500 penalty.

Required:

  • Advise Hamid if this contract with Speed Connect is valid? Can he get out of this contract? 
  • Use the IRAC (Issue, Rule, Application & Conclusion) method to answer this question.

Assignment Solution

A contract is a legally binding promise or agreement. The five major concerns of contract law analysis are:

  1. The processes by which contracts are formed, the identification of the parties and the identification and interpretation of the terms of the contract so formed.
  2. The circumstances in which contractual agreement is affected by the presence of a vitiating factor or illegality.
  3. The requirements of contract performance and the circumstances in which breach of contract occur.
  4. The circumstances in which a contract will be discharged and the consequences of such a discharge.
  5. The principles governing remedies for breach of contract.

 

Issue:

There are several issues cited in the case. The main points of contention are as follows:

  1. Is Hamid bound by the contract?
  2. Was in the first place contract valid?
  3. Who is liable to pay the penalty for the same?

The major points of issue arise because of the difference in the approach as has been indicted by Kathy to close on the business. She could have easily used the translation service available with her company, instead she used the time saving technique of speaking. Kathy may have been successful in the past with the same, but the same is not holding good now for her and the company as Hamid was forced into a contract or rather the terms of contract were not fully disclosed to him.

Also, the 2nd issue props up if Hamid can terminate his contract before the 2 years’ time frame, which was very critical to the business, but it was never disclosed to Hamid. This means that Hamid is responsible to pay the penal charges, but is he actually liable to make the payment for the same is a big question. a

Rule: http://www.murdoch.edu.au/Courses/Business-Law/

The rule of the law system sets the rules of doing the business. It creates a stable environment where you can make plans, property is protected, expectations do exist, complaints can be made and rights can be protected. Any kind of violation of the law would result in penalties. The law of the land also protects the consumers from harmful business practices and limits the government from engaging in any abuse of practice against the business. In the current situation, the major loophole, is the malpractices used by the business in tricking the consumer, Hamid.

It can be arguing that Kathy worked in her personal capacity to lure in Hamid into the contract and the business or rather the company had no take away from that. But this argument is completely lopsided. The major reason behind the same is that when an employee of the company talks or sells a product to the consumer then it is not the employee who works in the personal capacity, but the employee is representing the company and hence as a result of the same, all the actions of the employee are the acts of the company. This will also ensure that any acts that the employee has carried out are the words and actions of the company and it is the responsibility of the company to make sure that the same is guarded.

Hamid, as a customer was tricked into the contract on false promises, and as the rules of contract rule, he is responsible for only those parts of the contract for which he is liable, or he is true. All the other parts of the contract will be adhered by the company.

Application: http://law.unimelb.edu.au/cclsr/centre-resources/corporate-and-commercial-law-journals

The application of law to this case will take the following terms:

 

  • Since Hamid was not very versed with the English language and Kathy instead of using the translation service used her own judgment to make sure that she can close the business, id not right. This is because Hamid can always fight in the court that he was not aware of this part of the contract as he was not told about the same. To save itself from such future troubles, employees like Kathy and especially the company should make sure that the employee uses the translation service to close the business. Rather to have a much better understanding of the same, the company can set up a small team, and once the business is closed and before rolling out the same to the client, the business can make a verification call to the customers and make sure that the client understands all the terms of the contract. This will ensure more credibility to the company. This will also raise the company in the eyes of the customers and also in the court of law. The company can then fight the customer easily in the court and this could be handy for the company.

 

  • The other point of contention is the termination of the contract. Hamid, the customer, seems to be the innocent one in this case. This is because he is unaware of the 2 years lock in period and is also unaware of the penalty. Since he is financially not able to afford the service, he was right in his duties to get it closed, to make sure that he doesn’t become a defaulter of the same. It is much worse of situation for the customer when he is not able to afford the service and used the same, and when the time comes to pay for the same, he is not able to pay for the same. In this case, Hamid was sure about his position and did the intelligent thing of closing the service. But to his shock the penalty or the lock in period was not justified. The company should understand that the customer is right in this case and the case should not be pursued in the court of law.

 

Conclusion:

There are several important lessons that were learnt from this case. The most important is that the terms of contract should be explained to the customer in the language of his / her understanding and not the local language in vogue. Had Kathy been a little smart in her approach, the current situation would have never propped up in the first case.

As per the terms of the contract, the contract can be written and oral, and in this case the oral law was flawed and hence the oral law, which was used to get the written contract complete was not successful. This is very important point in respect of the contract and understanding the commercial law. This is because when the 1st step to the contract is not correct then the aftermaths of the same can also be not correct in any manner.

The closure of this case is only possible with the case being in favor of Hamid and not the company or Kathy. This is because the customer has been fooled into the contract and he should not be held liable for the losses of the terms of the termination of the contract. The company should now go ahead to close the services that it has rendered to Hamid as per his closure requests and should not be charging any kind of penalty for the same. The penalty for the pre-closure would have been only successful had the contract was explained to Hamid in the right manner. Since the same was not successfully explained to the Hamid he is in his rights to close the contract without serving to the terms of the contract as is being services by the company. Any losses or penalties for the same has to be self-serviced by the company and in no way is Hamid responsible for the same.

A great business can go under very quickly if it doesn’t pay proper attention to the laws and regulations governing its management – as laws governing consumer and employee protection, product disclosure and even business reporting and compliance can be vast and often highly complex.

  1. http://www.adelaidenow.com.au/news/south-australia/high-court-could-return-preachers-to-mall/story-e6frea83-1226586588243?nk=a5ab758f7bfd37511e8c8822a424b262 (Accessed on 30th Jan 2015)
  2. http://www.monash.edu.au/pubs/2015handbooks/units/LAW4198.html (Accessed on 30th Jan 2015)
  3. http://law.unimelb.edu.au/cclsr/centre-resources/corporate-and-commercial-law-journals (Accessed on 30th Jan 2015)
  4. http://www.murdoch.edu.au/Courses/Business-Law/ (Accessed on 30th Jan 2015)
  5. http://guides.lib.monash.edu/commercial-law (Accessed on 30th Jan 2015)

 

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