Law20019 Law Of Commerce Answers Assessment Answers

3.Peter is interested in buying indigenous art and contacted Martin, the art collector, who sold him a painting.  Martin has described it as a painting done by a well-known local Nunga indigenous artist.

A week later, Peter buys the painting for $5,000 without further consultation. He later discovers that it is in fact a fake which has been done by a local non-indigenous artist, which is worth considerably less than what he has paid for it.  

Answer:

Law

The Australian Contract law governs the rules for the establishment of a valid contract in law. A contract is made when an agreement is supported with consideration and intention of the capable parties. (Clark J, 2010)

An offer is the intention or wish of the offeror which he intends to be complying with by the offeree. When this intention is communicated by the offeror orally or in written form then an offer is said to be made and is held in Carlill v. Carbolic Smoke Ball Co (1891). An offer can be made to one specific person or to the world at large.

Now, when the offer is approved by the offeree then there is valid acceptance in law and is held in Felthouse v Bindley (1862). An acceptance once made must reach the offeror in order to make it complete. However, when the acceptance is made by posting the letter of acceptance, then, as per Adams v Lindsell (1818) the acceptance is competing when the letter is posted. Thus, there is an immediate acceptance in case of postal acceptance. (Ibrahim et. Al, 2009)

Now, when an acceptance is made but the offeree incorporate new terms to the acceptance then it is not a valid acceptance in law and is called counter offer. The counter offer cancels the offer and the acceptance so made is considered to be a new offer and is held in Butler Machine Tool Co Ltd v Ex-Cell-O Corp (n.d),. This new offer when approved by original offeror resulting in the formation of contract.

The law is now applied to the facts of the case.

Application of Law

Issue i

Sally (a top fashion diamond jewellery designer) and Harry (rich diamond buyer) both met at a diamond exhibition that took place in London. They developed a friendly relationship and agreed to remain in touch. Harry has a house in London and Paris and both Harry and Sally started writing each other.

In May, a letter is written by Harry to Sally specifying that he really liked the design of the ring with a blue diamond and wish he had the same. It is submitted that through this letter Harry has communicated his desire to have the ring and thus made an offer that of the same to Sally.

Thus, an initial offer was made by Harry to Sally specifying his intention to buy the ring.

Issue 2

It is submitted that Harry has made an offer to buy the ring. Now, it is necessary that Sally must communicate her acceptance without bringing any changes to the offer in order to make a contract amid the two.

 Now, against the letter of Harry, an email is written by Sally specifying that she is delighted that Harry liked the ring and that she would love to supply the same. She further submitted that if Harry is interested in the ring then he must make his acceptance within three days.

It is submitted that Sally accepted the offer of Harry but included a new term that he must confirm the same within three days. Thus, a counter offer is made making her statement as new offer.

Harry the very next day reply through letter that he accepts the offer of Sally and will pay her $100,000. It is submitted that a valid acceptance is made by Harry and it makes no difference whether the letter is reached to sally or not because as per Adams v Lindsell  the acceptance is deem to be completed when the letter is posted.

Thus, there is a valid contract between the parties.

Issue iii

 If the acceptance is made by Harry not by a letter but by an email then as per Empirall Hldings v Machon (1988), it is necessary that the email must be read by Sally in order to consider the acceptance as complete. Thus, there cannot be immediate acceptance and the acceptance is complete only when the same comes in the knowledge of Sally.

Conclusion

An offer was initially made by Harry. Also, by sending the letter of acceptance there is  a valid contract that was established amid Sally and Harry.

Solution 2

Tanya has six children and is very rich. In order to save tax, Tanya has formulated a company. Also, in order to save the personal income tax she draws salary from the company so formulated by her. She is also interested in saving some money for her children so that the same can be used by them when they reach at the age of 21. She wants to be the trustee of a trust but is not aware of her duties.

Thus, it is now first important to understand the most suitable kind of trust that can be formulated by her. The most common kinds of trust that are generally found are: (TaxEffective, 2018)

1. Discretionary Family Trust – these trusts are formed in order to protect, manage and pass the family assets from one generation to another. The assets comprises of shares, property, business, etc. the capital gains and the income can be distributed by the trustee to any of the members they deem fit. By doing this the tax obligations of the persons can be reduced as the tax obligations are marginal. If any family member is facing financial crunch then income can also be distributed to them.
2. Testamentary Trust – it is the instructions of the will that determines the existence of testamentary trusts. The testamentary trusts come in the existence only after the person who has formulated the will dies. Instead of going directly to the beneficiaries, the assets that are intended to be passes after the death of the testator, the same is acquired by the trusts that hold the assets in the name and benefit of the beneficiary.

• Special disability trusts – At times there are disabled and vulnerable family members. In order to protect their interests a trust can be established which give benefits to such vulnerable persons.

1. Family Lineage trusts – the assets and money of the family remains in the family when a family lineage trusts is established. In order to protect the children from future divorces or bankruptcy, this kind of trusts can be established.  

Thus, these are some of the trusts that can be looked into before analyzing the best kind of trusts to be selected.

From the various kinds of trusts that are discussed above, it is submitted that the discretionary family trust is the best choice for Tansy to establish as she can make tax saving and can also draw salary there by reducing her tax band.

However, it is now important to understand the legal duties that she is expected to comply with. The major duties that must be catered by Tanya are:

1. One of the most common duties that must be exercised by every trustee of any trust is that there must be presence of fiduciary character. The trustee must act with all good faith and honesty so that the very purpose for which the trusts is established can be attained;
2. The trustee must make sure that the property of the trust must be vested as per the terms of the trust.

• Normally a trustee must not charge any kind of fee for exercising the responsibilities as a trustee. But, if there is any need that reasonable charges must be granted to the trustee then the same must be allocated to the trustee.

1. The trustee must make sure that there must not be merger of the personal assets of the trustee with the assets of the trusts.
2. A trustee must not make any kind of commercial activity with that of the trusts;
3. The duties that are enshrined to a trustee must not be delegated to any other person;

• The trustee must act solely and impartially in the interest of the beneficiary.
• That the trustee must make sure that the beneficiary for whom the trust has been established is getting his due rewards.  

Reference List

Books/Articles/Journals

Ibrahim et. Al. (2009) Postal acceptance Rule in the Digital World

Case Laws

Adams v Lindsell (1818) 1 B 

Butler Machine Tool Co Ltd v Ex-Cell-O Corp (n.d);

Carlill v. Carbolic Smoke Ball Co (1891).

Empirall Hldings v Machon (1988),

Felthouse v Bindley (1862);

Online Material

Clarke. J. (2010) Australian Contract law < <https://www.australiancontractlaw.com/law/formation.html>

Tax effective (2018) Type of trust < https://www.taxeffective.com.au/what-we-do/trusts-asset-protection/types-trusts>