The Components of Contract Formation
The key issue in this case revolves around a possible contract being formed between Mary and Lianne, based on the components of offer and acceptance.Rule
A lawfully binding agreement is deemed as a contract, in which are covered the promises made by the parties to such contract. In such a contract one party makes the promise to fulfil the task stated under the contract and the other party makes the promise to pay the value of consideration, as has been decided under the contract. It can be formed in both an oral and in written manner. In the oral manner, the terms on which the contract is based, i.e., the foundations of the contract, are exchanged orally. And in a written one, these foundations are put in a document which is then signed by the parties to such contract. Even though the formation method of the two differs, the oral and written contracts both continue to have legally validity, so long as they have the requisite components of contract formation.
For the creation of such a lawfully binding contract, the agreement needs to have the crucial components of a contract. These components are an offer, its acceptance, a consideration, the intention, the capacity, the clarity and the consent of the parties. Where such happens that even one of these elements is not present, the contract would not have legally validity.
The first element, which marks the beginning of the contract formation, is offer. There is a need to clarify that an offer has been made, instead of an invitation of treat being claimed as offer. The two terms cannot be changed interchangeably due to the inherent differences in them. The invitation to treat is an invitation to the parties for initiating negotiations on the terms of the contract. And offer however is an invitation to initiate legal relations between the two parties. In general, the advertisements which are placed under the advertisements section or as a commercial in the newspaper are given the status of an invitation to treat.
A leading example of this is the case of Partridge v Crittenden. In this particular case, the defendant had given an advertisement in the classified segment of the magazine and through this advertisement, the bramble finches were offered for sale. As per section 6 of the Protection of the Birds Act, 1954, this was an offence as the sale of such birds was deemed as illegal. And so, the defendant was charged and was convicted of this offence. This led to the defendant appealing against his conviction. The court applied the literal rule of statutory interpretation and held that this advertisement was not an offer and was instead an invitation to treat, which led to the conviction of the defendant being quashed. At times, the communication is neither an offer nor an invitation to treat and instead it is a request for information, as was seen in Harvey v Facey.
Offer - The Starting Point for Contract Formation
Once an offer has been made, the same has to be accepted by the party to which the offer was made. This is the next requirement in contract formation, i.e., the acceptance. The offer has to be accepted by the party to which the offer was made and not by another party, till specific authority has been given to them to do so. And an offer can be revoked only before acceptance has been attained on it. The offer has to be accepted exactly as it had been made by the offering party. In case of any changes while the acceptance is being given, the acceptance is not deemed as acceptance, but instead is taken to be a counter offer. And as per the case of Hyde v. Wrench, when a counter offer is made, the original offer expires.
The “date of acceptance” is also a crucial aspect in the contract formation. Generally, the “date of acceptance” is such date when the acceptance communication reaches the offering party. However, one exception to this is the “postal rules of acceptance”. Under these rules, the “date of acceptance” is the date on which the letter is posted by the accepting party. The reason for holding the posting date as the “date of acceptance” is because the postal office is deemed as the agent of the party which made the offer and so, the acceptance of the postal office is the acceptance of the offering party; this was held in the case of Byrne v Van Tienhoven. The offer and acceptance of the parties conducted through digital means is regulated by the Electronic Transaction Act, 1999. Under section 14 of this act, the date on which the communication leaves the device of the sender, is to be taken as the date of such communication and this is applied on both the offer and the acceptance.
Followed by the components of offer and acceptance, is the component of consideration. The contract needs to have a valid consideration, and the validity is dependent upon the economic value of the consideration. The context of the matter decides if the economic value is present, as in the case of Chappell & Co Ltd v Nestle Co Ltd, the court accepted the three wrappers as valid consideration. Next requirement is the clarity, which needs to be attained regarding the terms of the consideration, so that the contracting terms are not ambiguous. The next step in contract formation is consent of the parties. The parties have to freely consent to the contract without any element of duress or undue influence. The parties also need to have the contractual capacity, in terms of legal age and sound mind, for entering into a contract. And lastly, they need to have the lawful intention of creating legal relations.Application
Acceptance - The Next Requirement in Contract Formation
The given case study majorly revolves around the components of offer and acceptance. The advertisement which was given in the newspaper and which Lianne read would be deemed as an invitation to treat, based on the case of Partridge v Crittenden. This is because the wordings of this advertisement clearly invite quotes from the parties interested for hosting a corporate or private function.
The emails which were exchanged are a crucial part and section 14 of the Electronic Transaction Act would be applicable on them. So, the date on which these communications are sent, would be the date of offer, counter offer, and acceptance. The emails which were exchanged on June 10th covered counter offers and with each counter offer, the original offer expired. The very first email would be deemed as a request for information on the basis of Harvey v Facey as in this, Lianne just requested for certain information. The reply to this was again not an offer as a clear offer was not made and only information was being exchanged.
The offer was made in the three hour later email where a quote of $10,000 was made. To this offer, a counter offer of $9,500 was made. And even this counter offer did not get an acceptance and instead got a counter offer with $10,000 and some other specified conditions. No acceptance was received on June 10th on this offer. This offer was set to expire in seven days, and so, it expired on June 20th. The communication sent on June 20th would not be deemed as an acceptance as the offer had expired by then. So, Mary was right in replying that the price had changed as she had clearly stated that the specified price was for a limited period, which had already expired.
The new offer was made when Mary stated the value as $10,000. To this offer, an acceptance was made by Lianne when she asked Mary to go ahead with $10,000 deal. Once an acceptance has been attained, the offer cannot be revoked. It would not matter that Mary read the last two emails of Mary or not as the applicability of the postal rules with that of the section 14 of the Electronic Transaction Act would mean that the offer had been accepted when Lianne sent the communication and not when Mary read it. As $10,000 has economic value, the consideration would be valid based on Chappell & Co Ltd v Nestle Co Ltd. And the other elements of offer are assumed to be present. So, indeed a contract was formed and Mary is right to believe that a contract had been formed.
Consideration and Other Elements of Contract Formation
Hence, a valid contract was formed in this case between Mary and Lianne.Issue
The key issue in this case revolves around possible rights which Lainne has based on the Australian Consumer Law.Rule
Schedule 2 of the Competition and Consumer Act, 2010 covers the provisions regarding Australian Consumer Law, which is a key legislation for protecting of consumers in Australia. Section 3 of the ACL provides that a consumer is a person who makes purchase of, or acquires services to the value of $40,000 or less and uses the product or services for domestic, personal or household consumption or use. Section 18 of this act restricts the businesses from indulging in such conduct which can be deemed as misleading or deceptive. And section 29 puts a restriction on businesses from making such representation which can be deemed as false or misleading.Application
In the given case study, Lianne would be deemed as a consumer based on section 3 of the ACL as the boat, food and drink was supplied to her, for her party with friends which is deemed as a personal purpose. Mary would be deemed to have indulged in breach of section 18 and 29 as she misled Lianne regarding being provided with Malaysian cuisine and instead provided Russian style food. Further, the boat had not space as was promised which was against a false representation. Hence, Lianne is right in stating that she has rights as consumer and can bring action against Mary for breaching the provisions of ACL.
Hence, Lianne would be deemed as consumer and would have rights under this act.One of the controversial topics related to the contract law in Australia revolves around the advertisements which are published by the businesses in different media like internet, radio, print, and television. The reader of these advertisements gets impacted in a certain manner by reading, watching or listening to such advertisements. At times, businesses attract liabilities as a result of it; and on other instances, the businesses are able to evade the owed liabilities. This makes it obligatory for the businesses to be careful on the advertisements which they make. In the following parts, a discussion has been carried where the reason for this emphasis by the businesses has been elucidated.
As had been stated in Question 1 of this discussion, the advertisements in the newspaper are deemed as an invitation to treat and this was proved with the example of Partridge v Crittenden. In case the business can establish that an invitation of treat was present instead of an offer, they are not under the legal obligation of finishing up the sale. So, the goods which are kept on the shelf of a shop are deemed as an invitation to treat, where the business is not required to make a sale and an example of this is the case of Pharmaceutical Society of Great Britain v Boots.
However, there are instances where the advertisements which are given in the newspaper can attract liability for the party giving the advertisement. A prominent example of this is the case of Carlill v Carbolic Smoke Ball Company. In this case, the company had placed an advertisement in the newspaper whereby they stated that an award of £100 would be awarded to any such individual who got the disease of influenza even when they used the smoke ball made by the company. Carlill, the plaintiff of this case, still contracted the disease after using the company’s smoke ball and sued the company for a breach of contract. The court held that the newspaper advert in this case was an offer which could be accepted by merely acting upon it. And so, the company was asked to pay the award money to the plaintiff.
Case Analysis: Offer, Counter Offer, and Contract Formation via Email
Apart from the newspapers, the adverts which are placed through the digital mode can also attract liabilities for the businesses. So, when a business places an advert in the newspaper that a person could lose 10 lbs in seven days by consuming a particular tablet twice a day, would be deemed as an offer. This is because one could accept this offer by simply consuming the tablet in the specified manner. This makes it obligatory for the businesses to be careful when they draw up their advertisements as the wordings of the newspaper can result in a contract formation, instead of the intended invitation to treat. Apart from the contract law, these advertisements can also attract the Australian Consumer Law, where the advertisements mislead the consumers as was seen in Australian Competition and Consumer Commission v TPG Internet Pty Ltd.
In short, the advertisements which are placed by the businesses need to be carefully chalked out and the wordings in the adverts have to be taken care of in the drafting procedure. In case this is not done, the businesses have to incur liabilities form a formed contract or for the breach of the consumer laws.
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