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Commercial Law: Case Analysis

When entering into contracts, the parties involved are advised to be very careful in order to avoid issues that come with breach of contracts. As a result of such eventualities contracts, laws are established to regulate most of the details that are exchanged between the contracting parties. Despite the existence of such laws, a number of the contract law doctrines are yet to be applicable in the practical arena to regulate certain happenings. For example, disclosure of some details can, at times, lead to costs and benefits where the parties entering into a contracted are distracted from each other. In such a case, it becomes very hard to rule out which information ought to have been given out in the first place. Just as well, benefits and costs relating to contracts are bound to occur in scenarios where false statements about a contract are issued as well as where one observes that a liability is less controversial.

However, whereas the named issues find little appreciation with the contract law, the federal consumer law puts more emphasis in these issues. In addition, the consumer protection law is very sensitive on false advertising and any other fraudulent way of signing in contracts. As such, this paper offers insight on some of the ways that may make a contract invalid and, perhaps, call for its termination. Therefore, when people are entering into a contract, one of the key factors to consider is an understanding that there are cases and circumstance that may render a contract invalid because either the parties or one of them is not in a position to make a contract. Lack of capacity might be as a result of either parties or one making mistakes, providing misrepresented information during the negotiation process or even making use of unnecessary influence to make the second party conclude a given contract. In addition, if one party is under pressure to sign a contract then such a contract may be termed as invalid.

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This paper, therefore, examines the contract that was signed between John, a sales representative of Dubious Connection Pty Ltd and Nathan, a resident from Sri Lanka who visits Australia, but speaks little English. The paper aims at offering an insight on the validity of the contract that was signed between these two men as well as to give reasons as to why Nathan should terminate the contract or not.

Details for This Case

Nathan arrived in Australia from Sri Lanka and met John, who was a sales representative with a telephone company in Australia by the name Dubious Connections Pty Ltd. John’s responsibility in this firm was to sell telephone contracts to people where he was required by the company to meet a set quota at the end of the week. John offered his sale argument to Nathan who had thought about acquiring a phone to enable him to communicate with his friends and family.

However, Nathan did not know anything about telephone contracts since in his entire life, he had never bought a phone. For this reason, Nathan did not know the terms behind telephone contracts and when it was offered to him by John, he saw a chance for him to own a phone.  Since John knew the facts about Nathan’s lack of information concerning telephone and telephone contracts, he seized this opportunity to make Nathan sign the contract on claim that the company was carrying out a promotion that day. In addition, he assured Nathan that he had the opportunity of getting a free iOS7.1 phone if he signed a contract that day. Despite the fact that John had explained the contract terms to Nathan, he was quite aware that Nathan possessed no knowledge of what John was telling him regarding the terms, the actual contract as well as any conditions that Nathan was supposed to fulfil. Nevertheless, John did not take the initiative of looking for an interpreter to help Nathan in understanding the terms of the contract since his main aim was to have a contract signed as a way of increasing his week’s quota.

Nathan signed the contract, hoping that he could end it any time he wished to and give back the phone to Dubious Connections Pty Ltd. However, the terms of the contract were that upon termination of the contract anytime within the three-year period stated by the contract, one would be required to honour the contract by paying a sum of $3120, as well as an additional price amounting to $800 to cater for the iOS7.1 phone. Nathan found it hard to pay the monthly bill for the additional expense that he had to pay each month for the phone since his allowance from Red Cross would not be enough. As such, Nathan wished to bring the contract to end and return the telephone that was given to him by John.

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Issues to Consider

To begin with, Nathan did not know anything about phones since he had never owned one, while, on the other hand, John knew that Nathan did not understand what he was told about the terms of the contracts. John, therefore, misrepresented the point to Nathan as he did not consider seeking an interpreter in order for Nathan to get the contents of the contract in a language he could understand. In this case, validity of the contract became a nullity prima facie on the basis that John was in the act of defrauding Nathan by misrepresenting the facts and non-disclosure of the illegality that was being constructed by John.

For a contract to be valid, all the essential elements of a contract have to be fulfilled that is offer, acceptance, consideration, intention to create legal relations and mitting of the minds. Clearly, there is the capacity to create legal relations in this case since there is no mitting of minds in the Nathan’s case. John on one hand had other intentions to defraud Nathan because he was aware that Nathan did not understand fully what the terms of the contract were since he knew little English. On the other hand, Nathan thought that the contract was fit for termination at any time and at will. Such a way of thinking leads to a scenario where there is no mitting of the minds and it makes the contract invalid.

As such, to understand the case well, one can look at the types of misrepresentation of facts that commercial law emphasizes. To begin with, misrepresentation of the law is a whereby a person presents untrue statements concerning a particular issue or law, making one of the parties disadvantaged in that they enter into a contract without knowing the real facts behind the contract. In the case where party A is misrepresented by party B, just as in the case of Nathan and John, it is an action that draws basis on misrepresentation. For this respect, misrepresentation can be presented in three types: Fraudulent misrepresentation, negligent misrepresentation, and innocent misrepresentation. The fraudulent misrepresentation is whereby one of the parties entering a contract presents false information to the other party knowingly. On the other hand, negligent misrepresentation refers to a situation where facts of the contract are carelessly represented. Section 2 (1) of the Misrepresentation Act 1967 provides negligent misrepresentation whereby facts are presented with no reasonable grounds. Innocent misrepresentation refers to the representation that cannot be termed as fraudulent or negligent.

The contract between John and Nathan has elements of misrepresentation. John presented misrepresented facts to Nathan since he was quite aware that Nathan did not know anything about phone contracts as well as the terms involved. As such, due to the fraudulent misrepresentation of facts of the contract by John, the contract was invalid. In addition, the contract can be said to be voidable. Such a ruling is reached because any contract that is mired with fraud or misrepresentation is considered as voidable. Under the misrepresentation act of 1967, when two parties enter into a particular contract, the binding terms are those that have only been offered to the other party during the contract signing. For the case of Nathan, one can never establish any binding terms because Nathan knows little English and the terms have not been explained to him in a language he can understand. Perhaps, if he understood the terms, he would not have agreed to sign a contract.

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Contract Termination

It would be advisable for Nathan to terminate the contract that he had entered into with John. Based on the fact John had fraudulently convinced him to sign a contract, it was thus voidable and Nathan could rescind. However, one should understand that contract termination is highly contrasted with rescission. In a situation where a contract is unavoidable, Blum (2007) suggests that the best way to deal with such a contract is through termination.


Whenever a party discovers that the other party to the contract has given them false statements, the claimant is entitled to sign out of the contract. As such, if a contract has been termed as based on misrepresentation of facts, the affected party can seek a remedy. The remedy that any party is entitled to depends on the misrepresentation. Such a scene implies rescission of the contract, even though, at times, contract termination might still be an option. Claims on damage caused by being in the contract for some time and rescission are some of the remedies that an affected party can seek. Therefore, in this case, Nathan has a remedy to rescind the contract on the basis of misrepresentation on the part of John. In addition, since Nathan has been paying some monthly fee, he can as well claim for damage caused by some false terms of the contract. On the other hand, according to the Misrepresentation Act of 1967, one can be awarded the claim on damages on the basis of the tort measure that such a case has. According to the terms that Dubious Connections had laid out concerning its contract, one was not allowed to terminate the contract any time before the stipulated time. In a situation where the party did so, then the full fee for the contract plus the phone fee was applicable. However, for the case of Nathan, he was not party to such terms since his contract had been declared it invalid.

From the foregoing, it is important to note that when making any contracts, the parties involved should fulfill a number of the following things.

To begin with, acceptance of the contract terms is a key factor. Both parties should accept to be bound by the terms and conditions of the contract. As such, the terms and contracts should be in a language that the parties involved understand. If by any chance one of the contracting parties does not understand a particular language, an initiative to call an interpreter is a wise idea. This way, the contracting parties avoid issues where a party does not understand the binding terms.

The other factor that one can consider is the capacity to contract. A binding contract is between parties who have the capacity to enter into any form of contract. The main concern here is on the ability that a person has to contract and takes into consideration authority to a contract, infancy as well as mental incompetence. Lastly, is the contract legal or illegal? There is no single provision for parties to enter into a contract with the intention of carrying out illegal business. Therefore, before agreeing on any form of contract, it is advisable to consider whether the person one is entering a contract with is in the capacity to contract, whether the terms and conditions are clearly explained to both sides and, lastly, the legality of the contract. Such clarity will help one avoid cases where one party is withdrawing or terminating the contract on claims that some facts were misrepresented to them or they were not in a capacity to enter into such an agreement at the time of signing the contract.

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