Formation of Contract and Exclusion Clauses

Scenario 1: Lila's Contractual Issues with Computer Whiz Pty and Gumtree Seller Dina

1.Lila was watching television one evening and came across an advertisement by Computer Whiz Pty Ltd which had the following wording: “Financial year end sale. Up to 80% off on all computer equipment and other electronics in our store. Hurry now. This promotion lasts for selected brands only.Terms and conditions apply. Raincheck available.”

Lila turns up at the store the next day and walks around browsing the items for sale. She took a liking for an ‘IPhone Max’ which had a price tag of $1000 and proceeded to the counter to make her purchase. When the item was scanned at the registry, she was informed that the price tag of the item was in fact inaccurate and the correct price according to their system was $1500.

Lila was unsure whether to purchase the item. At that point, the store assistant informs her that the store was running a promotion where anyone who spent at least $2500 in the store, would be eligible to receive discounts on any of their computer equipment in the next six months (hereafter called the ‘Discount Promotion’). Lila was keen to receive the discount and managed to find 2 more items- an iPad and a scanner (worth at least $1000) which made her eligible for the discount promotion.

The store obtained her email contact details and stated that an email would be sent to her with an electronic voucher that she would have to print and bring in anytime over the next six months to receive a discount.

The next day, Lila came across an email with the discount voucher. The expiry date on the voucher was dated six months from the date of her purchase of the items.

While surfing the web later in the day, Lila went onto the Gumtree website and came across the following advertisement: “Second-hand study furniture for $500- study table and chair only. Mahogany wood.” Lila emailed the relevant contact person (Dina) as follows: “I am very keen to purchase your furniture but how old is your furniture and would you accept payment in 2 instalments?” Dina replied stating: “I’m sorry but I need the funds urgently in a lump sum.The furniture is 5 months old.” Lila emailed back four days later stating “I accept.” Dina replied stating “I’m sorry but I have already sold the furniture to someone else. There is no contract between us!”

Three months later, Lila decided to purchase a printer from Computer Whiz Pty Ltd. She was then informed that the store had sent an email to her a month ago informing her that the discount promotion no longer applied. Lila had not checked her emails properly and had failed to read that email. The store manager further pointed to a notice on their counter informing that the discount promotion no longer applied.

Scenario 2: Jane's Damaged Gown and Exclusion Clauses at the Dry Cleaners

Advise Lila what is her legal position under the topic of ‘Formation of Contract’. In particular, ensure you address the following questions in your answer. When answering each question, it is important that you outline the issue, relevant law, application and conclusion. Please refer to relevant case(s) in your answer (under the law part of your answer).:

(a)What are the four elements to form a contract and were they satisfied on the facts, as between (i) Lila and the store and (ii) Dina and Lila?

(b)Was the advertisement on television an offer to sell the item?

(c)Was the displayed IPhone Max at the store an offer to sell the item?

(d)Was the inaccurate price tag a breach of contract by the store?

(e)Was the promotion promising a discount on purchase of items of at least $2500, an offer?

(f)What was the effect of the email sent by the store to Lila informing her the discount promotion no longer applied? In other words, how does the Electronic Transactions Act apply here? Was the store in breach of contract?

(g)What was the effect of Lila and Dina’s emails to each other on Gumtree? Was there a contract between them?

2.Jane took her favourite ball gown to the drycleaners. After she paid, she was given a docket which she had to sign and at the back of it in small print, was the following wording: “This business, its employees and contractors accept no responsibility in breach of contract or negligence for loss or damage to your gowns including where colour has faded”.

She asks the employee at the drycleaners what the wording meant. The employee replied stating: “The wording only applies if your dress is made of satin which tends to change colour upon drycleaning. Your dress is not made of 100% satin and therefore should not be a problem.” When Jane came back with the docket, she noticed the colour on her dress had drastically faded and she demands the store compensate her for the damage.

The store manager simply points her to the wording and states it is very clear that the store has no liability for the damage.

Advise Jane on her legal position under the topic of ‘Terms of a Contract- In particular, under the topic of ‘Exclusion Clauses’. Refer to relevant case(s) in your answer. In your answer, be sure to address the following questions:

a.What type of clause was found on the docket Jane received?

b.Was the clause effectively incorporated into the contract? (i.e. was it a document to be signed or unsigned document and what was the legal effect of it being either one of those above)

c.Would your answer for (b) be different if the receipt was not signed?

d.What was the legal effect of the representative’s reply to Jane’s question about the clause on the receipt?

e.Was the wording of the clause clear?

f.Is the four corners rule relevant here?

g.Overall, are you of the opinion that Jane can claim for her damaged gown?

Scenario 1: Lila's Contractual Issues with Computer Whiz Pty and Gumtree Seller Dina

Whether the four elements required for creating a contract were presented between Lila and the store; and Dina and Lila, or not?

A contract is to be defined as an undertaken promise where one side of the party promise to pay the contractual consideration and the other side promises to undertake the contractual promise. For creating a contract, there is a need for the presence of certain elements, which includes offer, acceptance, consideration and intention of the parties. For creating a contract, the first step is for an offer to be made. It is important to differentiate between an offer and acceptance, as the former shows intent of creating a legal relationship and the latter denotes the intent of negotiating upon the offer. The advertisements in general are deemed as an invitation. It is also important to differentiate between an offer and a request for information. Harvey v Facey was a case where the Privy Council stated that answering about the lowest price of pen was a request of information and not an offer as there was a lack of intention. Also, the offer can be revoked before the same is accepted by the other party.

This offer has to be then accepted by the party to which the offer had been made. The date of acceptance is such date on which the acceptance is attained by the party which made the offer. However, the postal rules of acceptance prove to be an exception and provide that the date of acceptance is such date on which the acceptance letter is posted and the date of receipt remains irrelevant. This is because the postal office is considered as an agent of offering party, as per Byrne v Van Tienhoven & Co, which means the receipt of postal office is the receipt of the offering party. The postal rules of acceptance are applicable on the electronic mails as well; so the date of sending the email is the date of particular offer/ acceptance based on section 14 of the Electronic Transaction Act, 1999. Also, the offer has to be accepted as had been made. If anything is changed in it, it is deemed as a counter offer as per Hyde v. Wrench which leads to the expiry of original offer.

The next requirement is for the contract to have a valid consideration, which has economic value. Lastly, the parties need to have the legal intention of getting into the contract. Once all the four elements are present together, a valid contract is formed.

Scenario 2: Jane's Damaged Gown and Exclusion Clauses at the Dry Cleaners

Lila and Store

In this case, an offer was made by Lila to the store for the phone at $1000 on which a counter offer was made by the store to Lila to purchase the phone at $1500. This was because the consideration had been changed and as per Hyde v. Wrench, the original offer expired with this counter offer. However, even this counter offer was not accepted as the products changed later on to add an iPad and scanner. So, a new contract was formed at this stage, where the three products were to be bought by Lila at $2500. The discount voucher was not something which had been purchased and so, it did not form a part of the contract. This discount promotion was instead an offer which could be accepted by Lila in the next six months period. And since the offer was revoked through email three months ago, the date of revocation would be three months ago. Hence, due to the lack a standing offer and an absence of a contract in this regard, a contract was not formed between Lila and the store for the discount promotion.

There was no offer made in this case. The advertisement which was given in the newspaper was an invitation to treat. On this, an offer could have been made, had it not contained a question. An offer has to explicitly state the terms which are being offered. Here, there was uncertainty about the furniture being how old. Hence, this was not an offer. And neither was the reply of Dina an offer as this was only information given before the contract was formed. This entire communication was a pre-contractual negotiation. And without an offer, a contract cannot proceed.

Conclusion

Hence, no contract was formed between Lila and store, and Dina and Lila, owing to lack of valid acceptance in first case and lack of offer in second case.

Whether the advertisement was an offer to sell the item or not?

Partridge v Crittenden provides that the advertisements are to be deemed as an invitation treat and not an offer.

Based on Partridge v Crittenden, the television advertisement would be deemed as an invitation to treat.

Conclusion

Hence, the advertisement was not an offer to sell the item.

Whether the displayed IPhone Max at the store was an offer to sell the item or not?

Pharmaceutical Society of Great Britain v Boots provides that goods kept on shelf are an invitation to treat. And that an offer is only made when the person picks up the product from the shelf and goes to the cashier.

Based on Pharmaceutical Society of Great Britain v Boots, the displayed IPhone Max at the store would be deemed as an invitation to treat.

Conclusion

Hence, the displayed IPhone Max at the store was not an offer to sell the item.

Whether the inaccurate price tag be deemed as a breach of contract by the store, or not?

A breach of contract takes place only when a contract has been formed, and the promise made under the contract is not upheld.

The price tag is only an invitation to treat and also, no contract was formed which could lead to a breach of contract.

Conclusion

Hence, the inaccurate price tag cannot be deemed as a breach of contract by the store.

Whether the promotion promising a discount on purchase of items of at least $2500, an offer or not?

The promotions, like the advertisements are deemed as an invitation to treat.

The promotion was an invitation to treat, which converted into an offer once it was acted upon. Only when the purchase was made, was an offer made, which then had to be accepted by the cashier to give the discount.

Conclusion

Hence, the promotion promising a discount on purchase was an invitation to treat and not an offer.

Whether the discount promotion was validly withdrawn or not or whether there was a breach of contract?

(Same as above)

As has been stated earlier, the offer was revoked before it could be accepted and this was done three months before the acceptance was given.

Conclusion

Hence, the discount promotion was validly withdrawn and owing to a lack of contract, the same was not breached.

[Already discussed under issue (a)]

What type of clause was found on the docket Jane received?

An exclusion clause can be defined as such a clause of a contract, which has the power of limiting or restricting the liabilities of the contracting parties.

As the clause which Jane received had the power of restricting the liability under negligence or breach of contract of the drycleaners, it would be deemed as an exclusion clause.

Conclusion

Hence, an exclusion clause was given to Jane.

Was the clause effectively incorporated into the contract?

In order for the exclusion clause to be valid, the same has to be such that it does not restrict the applicability of any law. Also, the same has to be brought to the attention of the parties. However, where an exclusion clause is inserted into the contract, before the same is signed, and the person signs the contract, the exclusion clause is deemed as valid irrespective of the fact that the other person read it or not as per L'Estrange v Graucob.

In this case, the exclusion clause was signed by Jane and on the basis of L'Estrange v Graucob, it would be deemed as valid.

Conclusion

Hence, the exclusion clause was effectively incorporated in this case.

Would your answer for (b) be different if the receipt was not signed?

When the exclusion clause is not signed, it has to be brought to the attention of the other party.

The exclusion clause was brought to the attention of Jane by the employee of drycleaners. Also, she had already asked about the clause, which showed that she was aware of the exclusion clause.

Conclusion

Hence, the exclusion clause, even when was not signed, was properly brought to the attention of Jane, thus making it valid.

What was the legal effect of the representative’s reply to Jane’s question about the clause on the receipt?

There are certain vitiating factors in a contract which have the capacity of making the contract void or voidable. One of these is misrepresentation. Where an individual is forced or is induced in a manner so that such person gets into a contract, it is deemed as misrepresentation. The false statement has to be one of fact and not of opinion, as per Bisset v Wilkinson.

In this case, the wordings of representative were such so that Jane would simply go forward with the dry-cleaning. This was a false statement of fact and as per Bisset v Wilkinson, this would be deemed as misrepresentation. His reply misrepresented that the clause meant that it was nothing when it avoided the liability of the drycleaners from damage to the cloth.

Conclusion

Hence, the representative’s reply was misrepresentation.

Was the wording of the clause clear?

The exclusion clause, for being valid, has to be such that it is clear and not ambiguous.

The wordings of the exclusion clause were very clear and easily comprehensible.

Conclusion

Hence, the wordings of the clause were clear.

Is the four corners rule relevant here?

As per the four corners rule, the written contract has to be interpreted solely as per its textual context.

In this case, the four corner rule cannot be applied owing to misrepresentation of the employee of the drycleaners.

Conclusion

Hence, the four corners rule is not relevant here.

Overall, are you of the opinion that Jane can claim for her damaged gown?

Curtis v Chemical Cleaning and Dyeing Co was a case where the court held that even when the exclusion clause is properly inserted into the contract and is signed by the parties, an exception to L'Estrange v Graucob would be made, when there is an element of misrepresentation included in such transaction. The facts of this case are similar to the given case study also. So the ruling of this has to be applied here.

In the given case study, it has already been established that the exclusion clause was even though signed, but covered the misrepresentation of the employee of the drycleaners. So, because of the misrepresentation of the effects of the exclusion clause, reliance cannot be made on the exclusion clause, despite it being signed. And based on Curtis v Chemical Cleaning and Dyeing Co, the drycleaner would be liable for the negligence in properly cleaning up the dress. And the drycleaner would have to compensate Jane for her loss.

Conclusion

Hence, Jane can sue the drycleaners for her damaged gown and the exclusion clause would not allow the drycleaner in evading their liability arising from negligence, owing to misrepresentation by their employee.

A. Articles/ Books/ Reports

Andrews N, Contract Law (Cambridge University Press, 2^nded, 2015)

Davies PS, JC Smith's the Law of Contract (Oxford University Press, 2016)

Elliott C, and Quinn F, Contract Law (Pearson Education Limited, 9^th ed, 2013)

Furmston M, and Tolhurst GJ, Contract Formation: Law and Practice (Oxford University Press, 2010)

Gibson A, and Fraser D, Business Law (Pearson Higher Education AU, 2013)

Latimer P, Australian Business Law 2012 (CCH Australia Limited, 31^st ed, 2012)

Marson J, and Ferris K, Business Law Concentrate: Law Revision and Study Guide (Oxford University Press, 3^rd ed, 2016)

McKendrick E, Contract Law (Pearson Education Limited, 11^th ed, 2015)

Poole J, Casebook on Contract Law (Oxford University Press, 2016)

Stone R and Devenney J, Text, Cases and Materials on Contract Law (Routledge, 3^rd ed, 2014)

B. Cases