Elements Of A Contract: Offer, Acceptance, Consideration, Intention To Create Legal Relationship

Offer

1.Avinash is a regular visitor to a local café that provides a self-service facility where customers have the option of selecting a drink or food item from a menu displayed on a touch screen located near the counter. To select a product, a customer only has to touch an image or icon showing the desired product, and then touch a virtual ‘OK’ button to submit an order. The order is relayed to the café’s front counter where the cashiers can view it on their own screens.

Customers using the touch screen are immediately issued with a printed ticket containing an order number and the price payable at the front counter. Customers present these tickets to the cashiers who confirm the relayed order appearing onntheir screens. At this point, the customers pay for their purchases and await delivery.This system is designed to save time during peak  periods and is very popular. Some customers place their orders as takeaways, while others, like Avinash, prefer to be seated and consume them on the premises. These preferences are preselected by the customers when they use the touch screen.  When Avinash reached the cashier, he paid $4 for the coffee he had ordered and then took a seat waiting for it to be served at his table. The next morning, Avinash returned and ordered his usual coffee- and for the first time, a Danish pastry- using the self- service facility. The total cost was $7.50 which he duly paid. As he sat in the café consuming his drink, he bit into the pastry and struck something hard, breaking a tooth. He examined the chewed remains and found a piece of metal that had somehow been lodged in the pastry.

Avinash alerted management to this incident and demanded compensation for his anticipated dental repair. The manager expressed regret and directed Avinash to the ticket he had received which on its reverse side, contained a clause stating: This café accepts no responsibility or liability for any injury caused to customers by consumption of food or drink sold.

In response, Avinash exclaimed, ‘I’m a consumer and I have rights!’

Required

(a) Explain how the contracts Avinash made with the café were formed. ? You will need to address all the essential elements of a contract (including consideration) as well as analyse the legal status of each step or event that led to the café supplying Avinash with its products. Refer to relevant case law. In this part, do not discuss the impact, if any, of consumer protection laws. ?

You may, but are not obliged to use the IRAC format for this part, given that each step or event must be analysed separately.

(b) Explain whether the café is legally entitled to rely on the clause printed on the ticket to avoid liability in relation to Avinash’s mishap. ?  For the purposes of this part you should consider both common law as well as consumer protection legislation (confirming whether Avinash qualifies as a ‘consumer’). ?

2.‘In contrast to express terms found in a contract, implied terms can arise in a variety of ways and are beneficial to at least one of the parties to the contract. Some contracts may contain both express and implied terms, but the ways these two types of terms operate are significantly different from one another’.

Required

Discuss this statement by reference to cases and legislation, providing examples of each. ?

You need to justify your view as to whether these two types of terms are ‘significantly different from one another’. ?

In addition, include as an example in your discussion, reference to the types of terms indicated in the facts of question 1.

1.a.The formation of a contract depends upon the presence of its five essential elements. The elements are namely offer, acceptance, consideration, intention of creating legal relationship and capacity to contract.  

This section of the paper describes the elements of contract and conducts step by step analyzes for the purpose of determining the legal significance of each situation which takes place in the restaurant as to when the contract has actually been formed between the consumers and restaurant.

Offer

An offer is a sentence, phrase, statement or verbal expression which has been made by a person towards entering into a transaction with another person. The terms which the offer contains bind any person who accepts the terms in a legal obligation to the person who has made the offer. The expression can be considered as an offer if it is reasonably sufficient for the other party to know that there is intention of establishing a legal relationship on the part of the person making the offer. The offer has to be sufficiently clear, for instance an offer for sale of goods should contain place of deliver, quality, and quantity and price of goods and the way in which payment is to be made.

An advertisement or goods displayed in the shop for sale is not an offer. The provisions have been discussed by the cases of Partridge v Crittenden [1968] 1 WLR and Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401 respectively. This is because if advertisements and goods displaced for sales are considered as offers they would have a binding effect in relation to every person who has the intention of accepting the offer. The situation would not be practical as the person making the offer may not have the resources available to supply the goods to every person who has accepted the offer.

Acceptance

The  primary element of acceptance is that it can only be made by a person who has knowledge about the existence of the offer as provided through the case of R v Clarke HCA 47, (1927) 40 CLR 227.  Further as provided in the case of Hyde v Wrench the acceptance has to be absolute signifying that it must comply with the terms of the offer word to words.  Where such compliance is not ensured the acceptance is called a counter offer. In addition the acceptance has to be notified to the person who has made the offer as ruled in the case of - Entorres v Miles Far East [1955] 2 QB 327  unless the offer is an unilateral offer as was the case in Carlill v Carbolic Smoke Ball.  

Acceptance

Consideration

Offer and acceptance are based on consideration. In a contract every party receives a benefit and gives away a benefit. This benefit, promise of act or omission or price provided by the parties under the contract is known as a consideration.  A consideration needs to be present in a contract for it to be valid as stated by the obiter dicta in the case of Chappell v Nestle [1960] AC 87.

Intention to create legal relationship when the parties to the contract are into a commercial agreement the court presumes that both the parties to the agreement intended to from a legally binding contract according to the ratio decidendi of Edwards v Skyways Ltd [1964] 1 WLR 349.  On the other hand where the parties are in a domestic relationship such as brother and sister or husband and wife the court presumes the lack of intention. However, such presumption is always open to be rebutted according to the case of Balfour v Balfour [1919] 2 KB 571.

The menu of the restaurant is in form of touch screen located near the table.  In order to choose a product the customer needs press the ok button. Through the application of the case of Partridge v Crittenden it can be stated that this situation is an invitation to offer. This is because if everyone at the table selects the same item and the restaurant has limited resources it would not be able to provide such items to those selecting it.

The print out which is generated is also not an offer because every person who selects the ok button would be provided with the print out. Thus it is also an invitation to offer.

It is actually when the consumer takes the print out to the desk that he makes a valid offer as it was in the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists when a valid offer was made when the goods was taken to the counter for purchase.

When the restaurant accepts the printout and receives the money at the desk it is when an unequivocal acceptance is taken place which is signified then and there to the consumer by the restaurant. This is when the contract is formed. Thus when Avinash has taken the auto generated receipt to the desk and got the coffer the contract was formed.  The consideration in relation to such contract was the money paid by Avinash and the coffee served by the restaurant. Further as Avinash is more than 18 years old and is mentally sound he has the capacity of entering into a contract.

Consideration

1.b.Issue

The rights which Avinash has under common law and consumer protection legislation are at issue in this case?

Rule

It has been provided by the provisions of section 3 of the Australian Competition and Consumer Act 2010 (Cth) schedule 2 Australian Consumer Law that any person who purchases services or goods in Australia which are less than the price of $40000 or the goods have been purchased for householder and domestic use or the goods involve a vehicle to be used for transport is a consumer.

The issue in context can be analyzed by the application of the case of Donoghue v Stevenson [1932] UKHL 100 which is the landmark case in relation to negligence. In the case the court formulated a rule to protect the rights of individuals in the society. The rule signifies the identification of four three elements which are duty care, Breach, Causation and remoteness. The case also signified that the “manufactures have a duty of care to consumers”.

In the case of Baldry V Marshall [1925] 1 KB 260 it had been stated by the court that an exclusion clause of a limitation or liability cause is only valid when its incorporation as a contractual terms has been done in a valid manner.  In addition the court ruled in the case of Thornton V Shoe Lane Parking [1971] 1 All ER 686 that where the nature of a term is so wide and destructives of the rights of the party it has to be notified to the party  in a special manner such as through red ink. It was be prominent to the other party.

The clause can also be added in the course of dealing as per the case of Hollier V Rambler Motors [1972] 2 AB 71.  The court ruled that where the parties were continuously dealing with each other for a long period of time the any terms of the contract which is present would be considered as incorporated adequately.

It has been provided through the provision of section 64A of the ACL that implied conditions and warranties and the remedies and rights provided by the ACL cannot be excluded. Any attempt to incorporate an exclusion clause in relation to excluding the rights under the Act would be considered as void and make the person attempting to do so liable to prosecution.  It has been further provided by the provisions of section 260 of the ACL that the suppliers and manufacturers may be liable under this section if the goods supplied by them in trader or commerce do not comply with consumer guarantees as provided by section 51-59 of the ACL. Under the section it is the duty of the seller to provide goods which are safe for consumption.

Intention to create legal relationship

Application

Through the application of section 3 of the ACL it is evidently provided that Avinash is a consumer. This is because under the section any person who purchases services or goods in Australia which are less than the price of $40000 or the goods have been purchased for householder and domestic use or the goods involve a vehicle to be used for transport is a consumer and Avinash has purchased goods which is for personal consumption and is worth less than $40000.

It has been further provided that while consuming the pastry Avinash has been injured as it contained a metal string. Through the application of the case of Donoghue v Stevenson where it is stated that “manufactures have a duty of care to the consumers”, it can be proved that Avinash can make a claim against the restaurant for negligence.  The restaurant had a duty of care which has been breached and Avinash has suffered damages which are not too remote thus compensation for negligence is present.

There is an exclusion clause which is present in the receipt provided to Avinash which excludes the liability of the restaurant. As per the case of Hollier V Rambler Motors the clause has not been incorporated through the course of dealing and Avinash has been to the place for the first time. In addition through the application of the case of Thornton V Shoe Lane Parking although the term was provided prior to contract formation it would not be a validly incorporated as the nature of the terms calls for it being notifies specially to Avinash which was not done in the given situation.  Thus the clause is not valid under common law.

Under section 64A of the ACL that implied conditions and warranties and the remedies and rights provided by the ACL cannot be excluded. Any attempt to incorporate an exclusion clause in relation to excluding the rights under the Act would be considered as void and make the person attempting to do so liable to prosecution.  Thus the attempt of the restaurant to include the exclusion clause which restricts consumer guarantees is void and in addition the restaurant would be liable for prosecution.

Under the provisions of consumer guarantees it is the duty of the seller and the manufacturer to provide goods which are safe for consumption. However the restaurant has not provided goods which are safe for consumption. It is further provided by section 260 of the ACL that the suppliers and manufacturers may be liable under this section if the goods supplied by them in trader or commerce do not comply with consumer guarantees as provided by section 51-59 of the ACL. Thus here the restaurant would be liable to Avinash and would have to compensate him for the loss which has occurred to him due to metal in the pastry.

Consumer guarantees and Exclusion Clause

Conclusion

Thus form the above discussion a conclusion can be reached that the clause has not been incorporated under common law. The clause is invalid under ACL. The restaurant has been negligent under common law. The restaurant has breached consumer guarantees.  

2.Express terms are added in a contract by express consent of the parties. On the other hand the existence of an implied term is determined by the courts. In the case of The Moorcock (1889) 14 PD 64   it had been ruled by the court that implied terms are analyzed to be present in a contract when it is obvious for a reasonable person to presume that they are present. The terms must be necessary for the contract to be carried out. These terms are not identified when the case may be such that the parties want to incorporate the terms so the contract becomes just and fair.

There are many ways in which express terms are added in a contract

1. Pre-contractual statements- these are the type of terms which have discussed prior to the formation of the contract. However if any of such terms are not present in the written document they are not contractual terms as per the rule of parole evidence.
2. Incorporation through notice- a term is stated to be incorporated trough notice if it is displayed prominently before the formation of a contract.
3. Incorporation through signature- in the case of L'Estrange V Graucob [1934] 2 KB 394 the court ruled that term would be a part of the contract where the contracts have been signed by the parties.  

There are various ways in which implied terms may be added into the contracts. Some of such ways are as follows

1. Terms implied through operation of law-  win situation where weaker party is generally provided with protection by law it is going to be an implied term as per Liverpool City Council v Irwin [1977] AC 239.
2. Terms implied by facts-  In the case of The Moorcock It had been ruled by the court that where it is required to provide business efficacy to the contract, implied terms can be identified. This means that the contract would make no sense without such terms. In the case of Shirlaw v Southern Foundries [1939] 2 KB 206 the officious bystander test was introduced.  It had been stated by the court that where a officious bystander is present which suggested the terms to be included it is obvious that the terms are included.
3. Terms implied by customs- in Hutton v Warren [1836] EWHC Exch J61 the court ruled that where a term is generally accepted in a trade it is an implied term.

Conditions are the crucial terms based on which parties to the contract enter into the agreement. In the case of  Poussard v Spiers (1876) 1 QBD 410 the court stated that in case of breach of an contractual condition the provides the right to recession to the innocent party along with any damages they may be entitled to due to such breach.

Warranty- a warranty is less important term of contract which is not the motive why which the parties have got into an agreement. The court in the case of Bettini v Gye 1876 QBD 183 ruled that breach of warranty does not result in the right to recession by merely damages.

Classification of terms as per the facts in question 1

It has been provided through the facts discussed in the first question the express terms which were present in the contract between Avinash and the restaurant was the he would be provided with coffee and pastry at a certain price. In the same situation the implied term is that the coffee and pastry would be of good quality and would not cause any harm on consumption. This is also one of the conditions to the contract.

Australian Consumer Law 2010 (Cth)

Baldry V Marshall [1925] 1 KB 260

Balfour v Balfour [1919] 2 KB 571

Bettini v Gye 1876 QBD 183

Chappell v Nestle [1960] AC 87.

Donoghue v Stevenson [1932] UKHL 100

Edwards v Skyways Ltd [1964] 1 WLR 349

Hollier V Rambler Motors [1972] 2 AB 71

Hutton v Warren [1836] EWHC Exch J61

L'Estrange V Graucob [1934] 2 KB 394

Liverpool City Council v Irwin [1977] AC 239.

Partridge v Crittenden [1968] 1 WLR

Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401

Poussard v Spiers (1876) 1 QBD 410

R v Clarke HCA 47, (1927) 40 CLR 227

Shirlaw v Southern Foundries [1939] 2 KB 206

The Moorcock (1889) 14 PD 64   

Thornton V Shoe Lane Parking [1971] 1 All ER 686