Legal Analysis: Contract Formation And Advertising In Business Essay.

Case Study: Lianne and Mary’s Contract

1. Lianne, a wealthy property developer, wants to treat her friends by hosting and paying for a mid-year party on 30 July. She wishes to outsource the party arrangements to a professional organiser and searches the internet for one.

The following advertisement on the website of maryspartytreats.com.au catches her eye:

On 10 June the following email exchanges occur.

Lianne emails Mary setting out her requirements for a Malaysian themed party including that country’s high quality ethnic food and drink, and live Joget and Zapin styles of music provided by musicians. She expects twenty people in her group, and asks for a quote. She tells Mary to direct all correspondence to her given email address.  

In reply, Mary emails Lianne suggesting that the party be held on board a boat that will travel up and down the local river for a period of eight hours. Lianne responds immediately saying she likes the idea provided there is room on board for dancing, and enquires about the type of boat that will be used.

Three hours later, Mary emails Lianne with information about the boat and attaches a detailed quote for the amount of $10,000.     

Lianne replies that the quote seems a bit high and proposes a price of $9,500.

In response, Mary approves this lower price on the condition that her new quote for the lower figure would only remain open for seven days, and provided a 10% non-refundable deposit was received in that time-frame. As added encouragement, she writes, ‘I really hope to hear from you soon’.    

Lianne’s personal commitments distract her from responding to Mary’s last email. It is only on 20 June, that she contacts Mary again and on that date, the following exchanges occur.

Lianne sends Mary an email saying ‘go ahead with my party for $9,500. I’ll forward the deposit to you by the tomorrow’.

Mary replies, ‘Sorry, but the price is now $10,000 due to increased costs’.

Annoyed by this, Lianne writes, ‘You’re actually bound by your $9,500 offer. But I don’t want to quibble. So go ahead with the $10K deal’. Thirty minutes later, Lianne has a change of heart and sends another email to Mary stating, ‘I’ve changed my mind. The deal is off’.  

Mary does not read these last two emails from Lianne because Mary’s computer had just experienced hard drive failure. She has no other electronic devices to access her emails, and   the technical problem is not resolved until five hours later.   

When her computer is repaired, Mary reads for the first time Lianne’s two earlier emails.

Mary has found Lianne to be a demanding client - or potential client. She had spent some time and effort preparing the quote, and believes they have a contract.                 

Required

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)

(Focus on the topics: offer and acceptance).

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) was totally 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.     

2. 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).    

Required

Discuss this statement.

(Note: 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. (Focus in particular on the topics: offer and acceptance, and misrepresentation).

Case Study: Lianne and Mary’s Contract

Whether there is a valid contract amid Lianne and Mary?

The law of contract is one of the most essential legal frameworks that are required to establish a contractual relationship amid the parties.

A contract is a document which is the outcome of mutual exchange of promises by two or more parties. The two parties that are involved are offeror and the offeree. When these two parties fulfill the basic essentials of a contract, then, there is a legally valid contract that is established amid the parties. It is thus important to understand the main elements that together constitute a contract.

An offer is the foremost ingredient in any contract formation. An offer is nothing but a communication which is made amid an offeror and an offeree wherein a promise is desired by an offeror from an offeree to do or abstain from doing anything. An offer must move from an offeror and must be reach to an offeree to make it effective in law. An offer must be clear. In Carlill v Carbolic Smoke Ball Company, it was held that an offer can be made by an offeror to one single person or class of persons or to the world at large.

Many a times an offer is made for a specific time period and an opportunity is given to the offeree to accept the offer within such time. If the offeree does not accept the offer within such time, then, the offer is said to be revoked because of lapse of time and is held in Manchester Diocesan Council for Education v Commercial and General Investments Ltd. 

But, an offer is made a times is confused with an invitation to treat. In an invitation to treat, there is no offer that is made by any person. But, with the help of advertisements, through auction, tenders, etc, the desired person intends to receive offers from people in general. In such cases the statements which are made to invite people are called invitation to treat. Any person (offeror) who is interested in such statements must make an offer to the inviter. The inviter must than approve of the offer so make in order to make a valid agreement amid the parties.

Now, once a valid offer is made by one person than the same must be approved by the offeree without bringing any changes. Such approval in law is called an acceptance. An acceptance must reciprocate to the terms of the offer and if changes are brought while making an acceptance then it is not a valid acceptance in law and is called counter offer. A counter offer cancels the original offer and must be treated as a new offer which when again accepted by the original offeror results in acceptance in law.

The Main Elements of Contract Formation

However, in the leading case of Stevenson, Jacques and Co v McLean, it was held that a quote or request of information is no acceptance and thus neither be construed as a counter offer in law.

Now, an offer and acceptance in law makes an agreement in law.

When an acceptance is made then it must reach the knowledge of the offeror to make it binding and effective. When the acceptance is made then the general rule is that it must reach the knowledge of the offeror to make it binding upon the parties. But, in Adam v Lindsell, it was held that when an acceptance is made by post then the same is complete when the letter is posted and not when the letter comes in the knowledge of the offeror.

However, this postal rule is not applicable when an acceptance is made with the help of emails. In the leading case of Entores Ltd v Miles Far East Corporation, it was held that if an acceptance is send through email then it is binding upon the parties only when the same comes within the knowledge of the offeror. If the email is not read by the offeror then it is not binding.

If the offeree wants to revoke the email of acceptance then it is necessary that he must send revocation which must comes in the knowledge of the offeror prior the email of acceptance.

Apart from an offer and an acceptance, there must be presence of consideration, legal intention and capacity of the parties to make a binding contract.

The law is no applied to the facts of the case.  

Lianne is intended to host a party and thus looking for a professional. On a website she reads an advertisement published by Mary wherein she is offering her services from $500 for group of 5.

Now, since an advertisements published by Mary, thus, as per Partridge v Crittenden , it is as an invitation and Mary must act like an offeree. If Lianne is interested in the advertisement then she must make an offer to Mary.

On 10^th June, an email is sent by Lianne to Mary wherein she submits that he requires her services and thus she asks for a quote.

Thus, till now no offer is made by Lianne to Mary rather she is expecting a quote from Mary and in the law of contract a quote is not regarding as an offer nor an acceptance.  

Advertising and the Law

An email is sent by Mary in response to the query wherein Mary suggests that the party be held on board a boat that will travel up and down the local river for a period of eight hours.

Thus, only a response is made and no offer is made by either parties.

Against the response of Mary, Lianne submitted that she liked the idea and further added few more requirements.

After three hours, an email is sent by Mary wherein she quoted and amount of $10,000.   

It is submitted that as per the law in Stevenson, Jacques and Co v McLean a quotation is not an offer in law. Thus, there is no offer that is made by Mary to Lianne, rather, Mary has advertised the service and thus she is eligible to receive offers from Lianne.

Now, against the quote provided by Mary, Lianne offered her own quote of $ 9, 500.

This is the first time that an offer is made by Lianne to Mary against the invitation to offer that is made by Mary through advertisement.

But, the offer so made by Lianne is accepted by Mary with variation as she requires 10% non-refundable deposit and has provided a time of 7 days to accept the new variation.

Thus, by bring changes to the terms of offer a counter offer is made by Mary. This counter offer is the new offer which must be accepted by Lianne within 7 days. 

However, Lianne responses to the offer of Mary on 20^th June, that is after 10 days of making the offer.

Hence the offer made by Mary to Lianne on 10^th June is revoked because of lapse of time.

Now, on 20^th June, the new offer made by Mary is accepted by Lianne. However, since the offer is already revoked thus there cannot be any acceptance.

Mary again made a new offer of $ 10,000 which was duly accepted by Lianne. But, after thirty minutes Lianne revoked the acceptance and send the revocation through email.

The new acceptance and revocation by Lianne is received by Mary after five hours as her computer was not working properly.

It is submitted that when the accepted was made by Lianne through email then the same is valid only when it is in the knowledge of Mary. But, the same is not read by Mary. As per Entores Ltd, postal rule is not applicable when an acceptance is sent by post.

The Validity of Lianne and Mary’s Contract

Thus, it is presumed that Mary has read the email of revocation prior to the mail of acceptance and thus there is no contract amid the two.

Conclusion

It is assumed that the mail of revocation is read by Mary prior to the mail of acceptance sent by Lianne, thus, there is no contractual relationship amid Lianne and Mary.

Whether are there any rights of Lianne that can be imposed against Mary under the Australian Consumer law?

The Australian Consumer law is the legislation that is enacted for the protection of consumers.

As per section 3 of ACL, a person is regarded as the consumer provided the goods that are purchased by her is up to $ 40, 000 or if the goods are more than $ 40,000 than the  same is purchase for domestic purposes.

In ACL, there are few guarantees that must be comply with by every supplier in order to avoid any repercussion. The same are:

i. As  per section 29 any false and misleading representation by the supplier are prohibited in ACL;

ii. Also, no supplier must mislead or deceive the consumer and is prohibited.

iii. As per section 54, the goods must be of acceptable quality;

iv. As per Section 56, the goods must match the description.

v. As per section 55, if the consumer has specified the purpose for which the goods are to be used then the goods must fit for the purpose supplied;

It is submitted that a contract is established amid Mary and Lianne for $ 9,500. Since the worth of the contract is less than $ 40,000 thus Lianne is the consumer under section 3 of ACL

Now, when the contract is established, then there are various requirements that are submitted by Lianne, that is, the party must be:

i. a Malaysian themed party;

ii. including that country’s high quality ethnic food and drink,

iii. live Jogetand Zapin styles of music.

iv. A room on board for dancing

However, when Lianne arrive with her friend the food that was supplied was Russian-style food rather than Malaysian cuisine. Also, the boat was extremely cramped and it was a tight squeeze to accommodate all the party guests. There was no room for dancing.

It is submitted that Mary is responsible to honor the consumer guarantees that are provided under ACL.

Lianne has specified the descriptions for which the goods are to be used. But, the goods actually supplied do not fit the purpose for which they are supplied. That, Mary is in violation of section 54-46 of ACL

Also, there are various representations that are made by Mary, that is,

i. that they will arrange a party that will be efficient, stylish and professional.

ii. Also that the party be held on board a boat that will travel up and down the local river for a period of eight hours

Mary had made false and misleading misrepresentation and thus is in violation of section 29. Also the acts of Mary were deceptive in nature so as to induce Lianne to establish a contract with him. Thus, marry is in violation of section 18 of ACL.

Conclusion 

Thus, Lianne can sue marry under ACL for violation of section 18, 29, 54-56 of ACL.

2. 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. Thus, 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.  

Thus, there are several rules that are framed within Australia that guides the action of the advertiser. If the advertiser does not follow such rules, then it is nothing but the violation of regulations and enactments framed by the government of Australia.

Some of the legislation is:

i. Section 18 of the Australian Consumer Law (ACL) deals with advertisements that are misleading and deceptive in conduct. Those advertisements that include offers are considered to be misleading and deceptive in nature. Also, if claims are included in the advertisement which are in small prints and are not readable then also the same are considered to be breach of section 18 of ACL. Silence or failure to disclose information is also a breach. 

ii. Any kind of opinions or predictions that are portrayed by the advertisers in order to deceive or misled the readers are also considered to be deceptive and misleading in nature.

iii. As per section 29 of ACL, any false and misleading information provided by the advertiser is prohibited under section. A representation is considered to be misleading when:
a. It comprise of testimonial of the persons which are not true. 
b. Any false claim regarding the style, quality, history or product or service;
c. The claim that repair facilities are available which in fact is not true in nature;
d. Any exclusions of the goods are also probated through an advertisement;
e. Any claim of the accessories, sponsorship, characteristic of the goods are considered to be false and misleading if made through advertisements and are fake;

f. To claim that goods are new which in fact is not true is a kind of false and misleading act on the part of the advertiser;

g. Any offering of gifts, prizes, rebates or free items also false within the category of false and misleading act on the part of the advertiser;

iv. Any false representation regarding the origin of the country is also prohibited and no advertiser must make any kind of information which misinforms the advertisers. 

v. No advertiser is permitted to carry out any unconsiousable conduct and is prohibited under section 20 of the ACL. An unconsiousable conduct incur when the stronger party uses his position to bring an advantage for himself at the cost of the weaker party[ Commercial Bank of Australia Ltd v Amadio (1983) and ACCC v Lux [2013].

vi. Bait advertisement are not allowed as per ACL;

vii. There are several advertising and marketing communication upon which AANA Code of Ethics applies. Several kinds of advertising is included which includes television, radio, billboards, and online content;

viii. Apart from above there are several other codes that are applicable on fair advertisement. The same includes:
a. Australia Food and Grocery Council Responsible Children’s Marketing Initiative of the Australian;
b. ABAC Responsible Alcohol Marketing Code
c. Therapeutic Goods Advertising Code 2015 ;
d. Weight Management Industry Code of Practice 2015;
e. Food and Beverage Industry.

Considering the above statements and the laws that are framed in support of the fair and genuine advertisements, it is submitted that in Australia, the advertisement must be published in any form but it must regulate with the legislations that are enacted In Australia otherwise there are strict penalties that must be faced by the advertisers.

Books/Articles/Journals

Bailey, Julian, Construction Law (CRC Press, 2016).

Furmston, Michael , Tolhurst, G.J. , Contract Formation: Law and Practice (OUP Oxford, 25-Mar-2010)

Gillies, Peter, Concise Contract Law  (Federation Press, 1988).

HILL, SIMONE W B,  Email contracts –When is the contract formed?, [2001] JlLawInfoSci 4.

Latimer, Paul,  Australian Business Law 2012 (CCH Australia Limited, 2012).

Todd, Stephen, Burrows, J. F. , Finn, Jeremy, Contract Law in New Zealand (Kluwer Law International, 2011).

Case laws

Airways Corp of New Zealand v Geyserland Airways Ltd [1996].

Adam v Lindsell [1818].

ACCC v Lux [2013].

Australian Woollen Mills Pty. Ltd. v. The Commonwealth [1954].

Beale v Taylor (1967).

Butler Machine Tool Co Ltd v Ex-Cell-O Corp Ltd [1977].

Carlill v Carbolic Smoke Ball Company [1892].

Competition and Consumer Commission v Bunavit Pty Ltd [2016].

Commercial Bank of Australia Ltd v Amadio (1983)

David Jones v Willis (1934).

Entores Ltd v Miles Far East Corporation [1955].

Grant v Australian Knitting Mills (1935).

Latec Finance Pty Ltd v Knight [1969].

Manchester Diocesan Council for Education v Commercial and General Investments Ltd [1969] .

Nunin Holdings v Tullamarine Estates [1994] 1VR 74 at 83.

Partridge v Crittenden [1968].

Stevenson, Jacques and Co v McLean (1880).

Online Material

NFPlaw, The law of your advertising and your community organization,2016

<https://www.nfplaw.org.au/sites/default/files/media/The_laws_of_advertising_and_your_community_organisation.pdf>.