Analysis Of Contract Formation And Legal Rules For Advertisements: A Case Study Essay.

(a) Explain whether the parties had entered into a contract with one another. Your answer should include analysis of all the parties’ exchanges and their legal significance (if any) whether any opinions or views held by the parties are correct or not. ( Furthermore, beware of the words or descriptions used by the parties throughout the facts as these are only their interpretations of events, and may be incorrect).

(b) Assume for this part only, a contract was formed between the parties for the price of $9,500.

On the agreed date of 30 July, Lianne arrives with her friends who boarded the boat arranged by Mary. The food and drink supplied by Mary ( through her supplier, Food Organics Ltd) wastotally different from what Lianne had ordered, as it consisted of Russian-style food rather than Malaysian cuisine. Furthermore, the boat was extremely cramped and it was a tight squeeze to accommodate all the party guests, let alone the musicians, leaving no room for dancing. All the food was consumed. Upset by this, Lianne complains to Mary, ‘I’m a consumer and I have rights, you know!’.

Advise Lianne of her rights, if any, against Mary under the relevant legislation.

Advertisements published by businesses appear in various media such as television, radio, print, or internet. In Australia, as elsewhere, advertisements are designed to have a certain impact or effect on those who see, read or hear them. An example appears in the facts of Question 1 (above).

The business advertiser needs to be careful about statements made in its advertisements given that they are subject to legal rules developed by the courts as well as by parliament ( through legislation).

This is not an IRAC question but an essay question. Ensure you do discuss the statement, with which you may agree or disagree. Refer to relevant legal authorities such as cases and legislation in support.

Question 1 (a)

The case study reveals that the main issue here is regarding a valid offer and a valid acceptance being made, which effectively resulted in a valid offer, or whether the offer and acceptance were invalid, so as to render the offer invalid.

A contract can be defined as a voluntary arrangement which is enforceable through the law and becomes a binding legal agreement, which takes place between two or more people. The contract law is covered under common law and in civil law jurisdiction. The formation of a contract is very important process as upon it, depends the validity of the contract, along with its enforceability. The key components which have to be present for the creation of a binding contract are:

• Offer
• Acceptance
• Consideration
• Intention
• Capacity
• Consent
• Clarity.

Once all of these elements are present in an arrangement, a contract is found, which has validity in the eyes of law and which gives rise to certain rights and liabilities for the parties of the contract.

Offer is the initiation point in any contract and it marks the beginning of the contract. The offer denotes that the parties involved in this mutual arrangement want to begin legal relationships and be bound by the contract. An offer is different from the invitation to treat which comes before the offer, though, is not required to be present for contract formation. Invitation to treat shows that the parties, who could form a contract in future, want to negotiate upon the offer of the contract. The reason for differentiating between the two is that an offer gives rise to legal liability, whereas an invitation to treat does not.

The advertisements which a person comes across in different modes are usually deemed as invitation to treat. For instance, in Partridge v Crittenden the newspaper advertisement given by the defendant was considered as an invitation to treat. And so, the appeal of the defendant was upheld and his conviction was quashed. It is also important to differentiate between an offer and a request for information. An example of this can be found in Harvey v Facey where the Privy Council stated that the answer of the lowest price was not an offer but a request for information, due to the lack of intention.

The offer can be terminated only when it is revoked by the offering party. An important point is that the offer can be revoked only before the same is accepted by the accepting party as was seen in Byrne v Van Tienhoven & Co. Also, an offer expires when the time for which the offer was open for, expires. A counter offer also destroys the original offer. For instance, in Hyde v. Wrench the court stated that when a term is modified or changed while the acceptance is being communicated, it results in the original offer being expired and a counter offer being drawn.

The second step in formation of contract is the acceptance. As the name suggest, this requirement is for the offer to be accepted by the party to which the offer had been made. It is important that the acceptance is given clearly and in an unambiguous manner. As was seen in Felthouse v Bindley, silence cannot be deemed as acceptance. Also, the requirements of the offering party have to be met when an acceptance is being communicated.

Rules for Contract Formation

A key aspect under acceptance is the date of the acceptance of the offer. As per the general rule, the date of the acceptance of the offer is such date when the acceptance given by offeree reaches the offeror. Though, a very famous exception to this rule is the postal rule of acceptance. Under the postal rule of acceptance, the date of posting the acceptance letter with the postal office is to be taken as the date of the acceptance of the offer. The reason for this was given in the case of Byrne v Van Tienhoven as the court held that the postal office was the agent of the offering party as they specified post as a valid method of acceptance. The postal rules of acceptance are also applied on the communication of offer and acceptance which is sent through emails. Hence, the date on which this letter actually reaches or is read by the offering party is not relevant. This applicability is based on the Electronic Transaction Act, 1999. Section 14 of this act states that the date and time of the offer or acceptance is such a date and time on which the email leaves the computer system of the sending party. So, here also, the date on which the receiver reads or the reaching date of the communication is not relevant.

The other aspects of contract formation include the presence of a valid consideration, whereby the need is for the consideration to have economic value. Further, the consideration has to be sufficient and not adequate, so it can be mutually decided between the parties. The next step in the formation of contract is having clarity regarding the terms on which the contract is being formed. There is also a need for the parties to the contract, to have the legal age and sound mind, for them to have the contracting parties for getting into a contract. Lastly, there is a need for the contracting parties to consent to the contract in a free manner, where they are not forced to get into the contract.

The rules which had been decided in the preceding segment now have to be applied to the given case study, to resolve the issue which were raised in the first part of this discussion. One thing is very clear that the case study had its focus upon two key elements, i.e. offer and acceptance. The advertisement in the newspaper, which was read by Lianne, would be considered as an invitation to treat. This is because firstly, the quotes were invited in this case from the public for getting a party arranged for the reader. And secondly, on the basis of applicability of Partridge v Crittenden also, this newspaper advertisement would be considered as an invitation to treat. Hence, no offer was attained at this stage.

Section 14 of the electronic transaction act would have to be applied for the purposes of ascertaining the date and time of the offer/ acceptance/ counter offer/ revocation/ request for information which was made in this case. Hence, the moment these emails left the system of the sender, would be the date and time of the particular communication.

Elements of Contract Formation

The exchange of emails which were sent on June 10 have been analysed firstly. This email and the email following it, were not an offer, but merely request for information as both Lianne and Mary were asking for certain information and not making an offer, based on Harvey v Facey. The email which was sent after three hours, containing a quote of $10,000 would be deemed as an offer. However, this offer was cancelled out through a counter offer of $9,500. Again, this counter offer was not accepted and another counter offer was made, with certain stipulations and the value of $10,000. Further, this offer was open for a period of seven days only, i.e., till June 17. This offer was never accepted and after its validity period, it expired.

The communication which was sent on June 20^th is not an acceptance as the offer had expired on June 17. And this was rightly stated by Mary where she asked for a changed price due to the previous offer being expired. This communication of Mary would be the offer of the case with the consideration value of $10,000. This offer was accepted by Lianne through an email where they gave a go ahead to Mary and a consideration here was fixed at $10,000. The offer sent by Mary could have been revoked before the acceptance was given by Lianne. However, this was not done, so the consequent email sent by Lianne for revocation of offer would not be valid as a contract had been formed through acceptance, as the other elements of contract formation could not proved to be absent.

C: Conclusion

 This discussion makes it clear that a valid offer was made by Mary, which was validly accepted by Lianne, which resulted in a valid contract.

The case study reveals that the main issue here is regarding the possible rights held by Lianne by being a consumer under the Australian Consumer Law (ACL).

Competition and Consumer Act, 2010 is the legislation which is applicable in the nation through which the businesses are required to promote competition and protect the consumers. Schedule 2 of the Australian Consumer Law is focused upon the consumer aspect of this act. Before rights are granted to the individual, it has to be proved that the person is a consumer as per section 3 of this act. Section 3 of this act requires a person has to acquire services or goods having a value of $40,000 for being a consumer and the product or services have to be used for domestic or person usage. The consumers are protected from misleading or deceptive conduct through section 18 of this act, and from the false and misleading representation through section 29.

Applying the rules to the given case study, it becomes very clear that Lianne is a consumer as she satisfies the condition laid down under section 3, whereby she acquired services of Mary for $9,500, for holding her personal party. And as a result of this, she can make a claim under section 18 and 29 of ACL as Mary mislead Lianne into believing that she would be provided with Malaysian cuisine and instead was provided with Russian-style food. Also, the capacity of the boat was also deceived about.

Offer and Acceptance

C: Conclusion

 This discussion makes it clear that a case can be made against May by Lianne, as Lianne is a consumer under ACL.

The advertisements which are published by the businesses in the different media, for instance, internet, radio, digital media or print can often lead to legal problems for the businesses. This requires the businesses to be careful about what they post and the wordings of such advertisements, so that the legal liability rising from these advertisements are avoided. Through this discussion, an attempt has been made to highlight the manner in which these advertisements could prove to be a costly affair for the companies.

In the very first part of this paper, the advertisement given by Mary was analysed which came to be an invitation to treat, as it had invited quotes from the readers. However, at times, the words of the advertisement are such, which can result in a liability for the party, if it is deemed as an offer, instead of an invitation to treat. A leading example of this was the case of Carlill v Carbolic Smoke Ball Company. This case had such wordings, which were deemed as an offer as they could be accepted by merely acting upon it. Conduct is a valid means of acceptance and where the parties do what has been stated in the advertisements, particularly for obtaining the reward mentioned in the advertisement, an offer would be deemed to be made. In Carlill, the advertisement stated that if after using the company made smoke ball, a person got influenza, they would be awarded £100. The plaintiff used this product and still got sick, and made a claim to the company. The company denied this claim which led the plaintiff in bringing a lawsuit against the defendant. The court held that a unilateral offer was contained in the company given advertisement and thus, the company had to give the reward to the plaintiff. This case thus became a leading example for the individuals to be careful in drawing out the wordings of the advertisement.

The liability is also attracted for a possible misrepresentation being made by the businesses. Misrepresentation refers to a false statement of fact being made, which induces another person into getting in the contract. A leading example of this is bait advertising. Bait advertising is deemed as an unethical technique of advertisements as in this, the customers lured into a promise regarding sale and upon the attention of the consumer being drawn the scheme is changed. Section 35 of the ACL makes bait advertisements as an unfair practice. An example of this was present in the second part of first question, where Lianne was baited into getting into a contract with Mary. Apart from this, section 29 could also be breached by the businesses, where they make a false representation regarding a particular term and be held liable for breaching the provisions of ACL. An example where the business had to bear additional costs was that of Australian Competition and Consumer Commission v TPG Internet Pty Ltd. In this case, the company had advertised that the package would be available at certain price, which contained hidden and additional costs. The court stated that the company had breached different provisions of this act and indulged in bait advertising. There are numerous other sections of the ACL, which would be applied on the businesses where they fail taking care while the advertisements are being drafted.

Once a case of misrepresentation is established under the contract law, or a newspaper offer results in formation of contract, the aggrieved party can apply for different remedies. The remedies which can be opted in such cases include the contract being voided, claiming compensation for the loss, applying for injunction or specific performance, and even repayment of money, through the applicability of provisions of ACL. The court could also order the contract not to be enforced or to be varied, or for the goods to be repaired. Instead of applying the financial resources in such field, there is a need for the businesses to safeguard from such occurrences, so that the money used for compensating the consumer, is used instead for the different objectives of the company. Also, these penalties create a negative view of the company in eyes of the consumer, which can again impact the revenues of the company.

Thus, it becomes very clear that the advertisements, irrespective of the medium in which they appear, can result in additional liabilities for the businesses, where meticulous efforts are not employed by the company in the creation and drafting of such advertisements. The case laws and the discussion covered above clearly prove as an example of the loss which the company could have to bear when care is not taken in these advertisements, particularly when they give rise to a legal liability.  

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