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Explanation of Contract Formation in Business Transactions

Question 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 which they present at the front counter for the cashier to confirm. At that 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 cappuccino- 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!’ 2

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, 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.

Question 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 in which 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, references to the types of terms indicated in the facts of question 1.

The IRAC format does not apply to this question.

Explanation of Contract Formation in Business Transactions

The issue in this case is to identify whether Avinash and the cafe have entered into a valid contract through the fulfilment of its elements.

For the contract to be validly found it has to comply with all legal requirements which includes the fulfilment of its elements such as offer, acceptance, consideration and intention to create legal obligation.

A valid offer has been described by the case of AGC (Advances) Ltd v McWhirter.  The court stated that an expression which is complete in nature so that another person may be lured by its terms to get into a contract is an offer. However if such expression is incomplete it becomes an invitation to offer.

In the case of Carlill v Carbolic Smoke Ball Company  the court stated that there must be an intention to create legal obligation between the parties in order to establish that a valid contract has been formed between them. The court finds out such intention through the objective test.

In R v Clarke the court stated that acceptance can only be in relation to an offer and its terms must be totally same as that of the offer.

As discussed in the above case the menu which has been provided by the restaurant in this situation would be an invitation to an offer as it does not have complete terms. When Avinash came into the restaurant and ordered through the menu it was an offer. The offer was duly accepted by the cafe. There was a valid consideration in this case of food and payment. There for a valid contract has been found between the parties.

There is a valid contract between Cafe and Avinash.

Whether the exclusion Clause is valid in this case according to the provisions of the Australian Consumer Law.

Provisions in relation to consumers are governed by the Australian Consumer Law provided through The Australian Competition and Consumer Act 2010 (Cth) schedule 2.

Section 18 of the ACL states that there must be no misleading and deceptive conduct by a person in relation to trade and Commerce . Consumer guarantees with respect to the supply of goods by seller has been provided through section 51 to 59 of the ACL. It has been stated by section 54 that any goods which has been purchased has to be of quality which can be accepted by a reasonable person.

In relation to the supply of services provisions has been provided through the provisions of section 60-64 of the ACL. The failure to comply with the provisions of consumer guarantees results in penalties for the seller under the provisions of section 260 of the ACL.

Elements of a Valid Contract

A person is not allowed to add exclusion clause in a contract which may restrict the consumer guarantees provided to a consumer.

There has been contract between Avinash and the cafe in relation to goods in form of food and services in from of the services in relation to the services provided by the restaurant. According to the provisions of the ACL these goods and services have to be of an acceptable quality. In addition the cafe is not allowed to include an exclusion clause which may limit it's liability towards consumer guarantees as provided through section 64A of the ACL.

Avinash is not bound by the terms of the exclusion clause incorporated by the cafe.

The provisions of a contract govern the obligation and rights imposed and provided to parties in relation to the contract. Every contract has two kinds of terms which are divided into Express terms and implied terms.

Main body

Terms which are not agreed by the parties in an express Manner are known as implied terms. The court has a duty to analyse whether such terms are present in a contract or not. Implied terms are said to be present in a contract only in situation where the court finds the incorporation of these terms as necessary in order to ensure the continuation of the contract. These terms cannot be incorporated only because they may make the contract just or fair. One of the primary cases in relation to implied terms is the The Moorcock  case.

A term the party to the contract expressly agree upon is known as an express term. These terms can come in form of both oral and written contracts. The parties to the contract are aware of express terms before the contract is entered upon into.

The primary difference between an implied term and express terms is that and express term is written into a contract where as an implied terms is not present in the contract with respect to the knowledge of the parties. There are various factors which lead to the incorporation of an implied turn into a contract. As discussed in the case of Balmain New Ferry Co Ltd v Robertson an implied term may be included into a contract with respect to past deals or customs. The Australian consumer law also governs implied turn and in this situation they are called statutory implied terms.

In relation to the first question it can be stated that there is a presence of both implied and express terms. The express terms in relation to the first question is that the restaurant would serve beverages and food to Avinash and Avinash in return would pay price for them. This term is also the condition of the contract as it is fundamental to the formation of the contract between the parties. No the parties have not agreed to the fact that the food provided to Avinash would be of acceptable quality however this would be incorporated into the contract between them as an implied term as without it the contract would not be able to function properly. This provision is also required under the rule stated in section 54 of the ACL. Also this term is not present in the contract it would be held by the court that this contract has to incorporate such terms in form of implied terms.

Bartling, Björn, and Klaus M. Schmidt. "Reference points, social norms, and fairness in contract renegotiations." Journal of the European Economic Association 13.1 (2015): 98-129.

Bayern, Shawn. "Offer and Acceptance in Modern Contract Law: A Needles Concept." Cal. L. Rev. 103 (2015): 67.

McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press (UK), 2014.

Parker, David and Box, Gerald, (author.) Business law for business students (Third edition). Pyrmont, N.S.W. Lawbook Co, 2013

Parker, David, and Gerald Box. Business Law for Business Students 2008. Lawbook Company, 2008.

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