QUESTION

LAW332 Commercial Law Assignment 1st Semester 2012

General Instructions (These instructions are in addition to the instructions in the Study Guide)

1. The length of your written work must not exceed 1500 Words.
2. In calculating the actual word count INCLUDE quotations and footnotes (exclude case names and citation, legislation, articles and book titles wherever cited in the footnote; and the title of the assignment).  Indicate on the front page your word count.
3. Write in “essay” format with appropriate references (bibliography not required) following The Australian Guide to Legal Citation (3^rd ed).
4. If you need more information to advise your client better, state the information you need and the reasons for the information.
5. Deposit your written answer in the assignment box marked “LAW332 Commercial Law Assignment” at the entrance to level 2 ECL (School of Law), not later than 12 pm on Monday 23 April (Week 10). Online or fax submission is NOT ALLOWED.
6. Please, refer to the Unit Information and Learning Guide regarding penalties for exceeding the word limit, late assignment, and application for extension of the deadline for submission of assignments.
7. The research and writing must primarily be the result of individual effort and skill. The University has a very strict policy against plagiarism and collusion.  Check the appropriate University web page in this regard. University rules require unit coordinators to report to the Faculty Dean all incidents of suspected plagiarism or collusion for investigation.
8. This assignment is worth 30% of the Unit assessment.

Problem

Botha is a recent migrant from South Africa.  This problem relates to three items of property, which Botha separately purchased in the last two months: a painting known as the Madonna, a used Mazda Ute (the “Mazda”), and a used Toyota Camry (the “Camry”).  Assume that Botha is a client of Rupert Murdoch Lawyers, a Perth law firm, which employs you as an articled clerk.  Assume further that Rupert, a partner in the firm, has instructed you to research and write a reasoned legal opinion, which he will use to advise Botha of possible liability and or rights and remedies, if any, with respect to each of the three items (you must treat the items as separate transactions).  Rupert is unsure whether the Personal Property Securities Act 2009 (Cth) (PPSA), adopted by the Personal Property Securities (Commonwealth Law) Act 2011 (WA), applies to the transactions. Rupert instructs you to write your legal opinion (a) Initially, without reference to the provisions of the PPSA and (b) with reference to the PPSA.  With respect to the latter, determine whether the PPSA applies to any of the transactions and if so, discuss what difference, if any, it would make to your former opinion i.e. (a).

The Madonna

Maria employed Goof, a real estate agent, to sell her apartment in Applecross. Goof borrowed from his girlfriend, Sue, several paintings, including the Madonna to decorate the lounge for the two weeks when the apartment would be open for potential buyers. On the first “house open” day several people (including Botha and his wife, who were hunting for an investment property) inquired more about the Madonna than the apartment. Goof asked Sue whether she would be interested in selling the Madonna. Sue responded that she inherited the Madonna from her aunty and would not sell it unless the price was right.  She told Goof to inform her of any good offers. On the third day of the “house open”, Botha went back to the apartment.  He asked Goof whether the painting was for sale, and Goof responded that it was, if the price was right. Goof offered to buy it for $500. Goof, who did not know much about paintings, was surprised because he did not think it was worth that much. Goof, without reference to Sue, immediately accepted the offer. Botha paid Goof $500 and he let him take the Madonna. When Goof told Sue, she refused to accept the money and demanded to get the Madonna back; but Botha refused to hand it back. It transpires that the Madonna is worth at least $5000. Sue threatens Botha with legal action unless he returns the painting or pays $5000 (its estimated market value) within a period of two weeks. Goof’s whereabouts are unknown.

The Camry

In 2010, Kwan, an international student, purchased from Murdoch Used Cars Pty Ltd (MUC) a Camry for $15,000 on credit.  Kwan paid $1000 and agreed to pay the remainder in 36 equal monthly instalments.  MUC retained title to the car until Kwan paid the last instalment.  Facing financial difficulties, Kwan advertised the car for sale for $4000. Botha thought the car was a bargain. He offered to purchase it (and Kwan agreed) at the advertised price. At the time of the sale, Kwan still owed MUC $10,000 over the car. Kwan did not inform Botha that he still owed money over the car or that MUC had retained title.  Botha handed the money to Kwan in exchange for the car.   MUC only became aware that Kwan had disposed of the Camry to Botha, when Kwan defaulted in paying the February instalment. Kwan recently left Australia. MUC threatens Botha with legal action for conversion unless he returns the Camry or pays the $10,000, which Kwan owed them.

The Mazda

Andy purchased the Mazda from Murdoch Used Cars Pty Ltd (MUC) on credit for $15,000 secured by a mortgage over the Mazda. Later, Andy decided to sell the Mazda and use the proceeds to travel overseas. Andy sold the car to Dodgy Deals Used Cars (DDU), which sells used cars on its own behalf as well as other people’s cars (charging a commission of 1%). Botha purchased the Mazda from DDU for $9,000. Unbeknown to Botha, Andy still owed MUC $11,000 secured by the mortgage over the Mazda. Andy’s whereabouts are unknown and DDU is not worth suing.  MUC threatens Botha with legal action for conversion unless he returns the Mazda or pays $11,000 outstanding

SOLUTION

COMMERCIAL LAW

The given facts of the case state that Botha a recent migrant from South Africa enters it to three different sale contracts separately. First, sale contract involves Botha purchasing a painting of Madonna from Good who is a property agent and who was selling a house and uses Madonna painting for decoration purpose. He had taken that painting from his friend Sue. When Botha wanted to purchase the painting for $500, not knowing actual value of the painting Goof sold the painting and he even did not inform it to Sue, who had insisted to him that she must be informed if there were any offers. After knowing the fact that the property was sold for a undervalue Sue threatened Botha that she would file a suit against him if he did not pay complete money, for this situation under condition (a) we need to check all the possibilities applicable for protecting Botha or advise him on the basis of remedies without referring it under the Personal Property Securities Act (PPSA). As per the given facts this can be dealt as third party transaction with principal-agent-buyer relationship. Here, Goof is the agent, Sue the principal, Botha the buyer, we know that Goof sold the property to Botha for $500 without knowing its actual value and also he misrepresented his principal by not informing her about the transaction. As per chapter 3.1.3 of the Commercial Law [1], & law of torts principal is always liable for the acts his agent so Sue can be held liable, the other point is who signed and completed the contract with Botha, if it is Goof then Sue cannot file a suit against Botha because he was ignorant of the fact that Goof did not inform Sue about their contract. Thus as per the states regulations Botha is not liable to pay to sue and also, Sue can demand from Goof only if he had signed the contract or she is liable herself as she acted as the principle of the good and there was misrepresentation by Goof who acted on her behalf i.e., as her agent.

Second, issue stated is related to purchase of a used Mazda Ute from Andy who had in turn purchased it from Murdoch Used Cars Pty Ltd (MUC) for a credit of $15,000. In order to travel overseas Andy sells the car to Dodgy dealer Used cars through whom Botha purchased the car. In the course of purchase Botha did not have the idea that Andy still owned $11,000 to MUC. Further to this MUC threatened Botha that they would file a case of conversion if Botha did not return the car or made the payment. But under legal implications conversion is where when someone wrongfully possesses the property or others and destroys or alters it. In this case Botha did not destroy or alter the car he had taken from DDU, so there is no act of conversion on his part because he himself did not have the knowledge that the Mazda which he had purchased from DDU still had a credit payment to be paid. Botha is legal in taking the property but until his innocence is proved it is unlawful for him to retain it. We can also consider it as an intentional tort made by Andy for her benefits, thus Botha has to prove his innocence such that he can give back the car to MUC and claim damages on the same because he was the third party and not involved in conversion or trover. As he also suffered from conversion he can claim compensation for his damages which are meager. This contract can also be viewed from nemo dat rule point of view which would be discussed in the next issue.

Third, Botha purchased Camry from Kwan an international student who had bought it on credit from MUC, and the title was still with MUC as Kwan alleged that he would be making the payment in 36 installments with advance of $1,000. He later sold it through an advertisement to Botha who thought it to be a bargain and he was ignorant of the fact that the title of the car was with MUC and Kwan was in debt with MUC. MUC threatens Botha that it would file a case of conversion if he did not return the car or made the balance payment. Here the situation is different to that of the second issue because the title was still retained with MUC and this issue can also be dealt under nemo dat rule because the car was sold without the consent of MUC who is its actual owner in that case the buyer attains same authority of the ownership as that of the seller who has no authority to sell it. Even if the case is dealt under conversion purpose Botha as in the prior issue has to prove his innocence in not knowing the facts of the car and also that there was non-disclosure of facts by Kwan while selling the car and thus he cannot be held liable until MUC could prove the intentional tort committed by Botha, and also he can disgorge Kwan of the profit he made with this fraudulent misrepresentation. The second and third issue of Botha can be dealt under the famous Rookes v Barnard[2]

As we have discussed the issues without reference to PPSA, we would have to move forward in relating the given issues with PPSA. PPSA act would come in to effect from the earliest of 2012 even if its registration is dated to 2009 and 2011.

From the regulations of the PPSA it can be understood that this act is applied when there is presence of secured interest during any proceeds of sale or purchase or re-purchase of the goods which may be tangible or non-tangible. Here to know the applicability of the act it is essential to know if there is presence of secured interest between the parties entering the contract. Here we have to understand what kind of interest the parties have while entering into the contract. As per the first issue it can be understood that Botha purchased painting named Madonna from Goof, who was acting on behalf of its actual owner. Here, we understand that the painting was sold for lower value than its actual value and also without the consent of the real owner. When a sale is made and its proceeds are not informed to the real owner, the owner has the right claim compensation, but Botha cannot be held responsible because he was unaware of the fact that Goof did not inform Sue about the sale or attained her permission. Under sec 20(6) of the PPSA the observations are different; it states that the proceeds are enforceable against the third party whether or not there is description of the same in a security agreement, whereas under law of torts this compensation has to be claimed by Goof only if he signs the contract or Sue is held liable because she is the principle of the contract. Thus, this changes our view and turns out that Botha can be held liable for his act has to compensate to Sue. The application PPSA has impacted our first assumptions of protecting Botha. The second and third issue can be discussed under PPSA with the support of Sec 45 where the motor vehicle are possessed free of secured interest and are exempted from the provision of act if the sale is made on behalf of the executed creditor, here as per the norms the executor does have the idea of the facts of the sale, but as per the facts of the case both the sale made to Botha were made without the knowledge of execution creditor which means that Botha as per our prior decision is held liable for the purchase made and he has to compensate the value to MUC. The reason Botha is held liable is because of act of negligence i.e., he purchased the vehicles without proper enquiry of the product. It is essential to know the entire facts of the contract before entering into it and even if the seller does not disclose the purchase should demand the facts such that he can avoid this kind of liability. Botha should have checked through the documents of the vehicles and also should have checked if the produced document were valid, once the documents are valid then he would never be held liable on any kind of breach by the seller, but here he purchased it thinking as a bargain for which he had to pay the compensation. It was his primary duty in verifying the details before entering into the contract. Thus, as per our prior discussion Botha is liable to pay the compensation not only under the act of conversion but also under the provisions of PPSA.

As per our discussions it can be understood that the decision given by us for the first issue is changed because under PPSA the third party is held liable and whereas in torts the party cannot be held liable. In context with the second and third issue our decision remains the same – Botha is held liable because he did not enquire into the actual facts of the motor vehicle such as RC book or the registration details and entered into the contract feeling it to be a bargain, thus he is liable under both circumstance i.e., with and without reference to PPSA.

REFERENCE:

• [1] Professor Rawlings Philip, Commercial Law, University College, London
• [2] [1964] AC1129 at 1182
• Law of Torts – principle-agent-buyer relationship; nemo dat rule
• Personal Property Securities Act, 2009 and 2011 – sections 20(6), 32, 44 to 45
• Securities Transfer Act, 2006
• Winfield & Jolowicz, Street on Torts, Tenth Edition 1999

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