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Background of the Accounting and Finance Partnership

Donna, Louis and Harvey are good friends and accountants working for three different Adelaide firms. It is now seven years since they graduated and each has enjoyed a successful individual career. One day the three meet for coffee and, while chatting, decide it would be a good idea to start their own accounting and financial planning firm. They each give notice with their employers and sign a new partnership agreement. They then register their new business and purchase a vacant office building in Goodwood (inner southern suburb of Adelaide). The trio attain loan finance from the Commonwealth Bank and renovate the office building, installing new computers throughout. They decide to shop around for the latest and best accounting software so they can offer their clients the most efficient and sophisticated service possible. Donna is tasked with finding suitable software.

Donna visits Number Crunchers, a specialist IT company in the city, and speaks with Cam, one of the sales staff. Based on her new firm’s needs, Cam recommends the ‘MoneyMakers’ corporate accounting software package which includes 24/7 IT support. The package is advertised in store and on the Number Crunchers website at $15,649. Donna says she is very keen on the package but wishes to check with her partners first to make sure they’re happy as well. She leaves her contact details, including her mobile phone number and email address, with Cam and says she will contact him in two days (Thursday). Cam provides his personal mobile number to Donna and says to call whenever suits as he works all week. After speaking with Louis and Harvey, they both agree on the package and tell Donna to go ahead and order it. Donna contacts Cam and the following text conversation takes place:

Meanwhile, Louis and Harvey have been hard at work finalising the office renovations and decide to reward themselves with a movie and game of laser skirmish. After visiting the cinema, they head to a nearby laser skirmish facility, ‘Flash Fort’ (which they’ve never visited before), for a few fun games to unwind for the day. The entrance, like the rest of the building, is dark with only fluorescent lights illuminating surroundings. They approach the counter where the staff member present asks them to write their names down and runs through some safety instructions before asking them to pay and suit up for their session. The full terms of participation are on the orange sign labelled ‘Mission Rules’ on the other side of the entrance (circled in picture below). When asked by Louis, the staff member

Formation of a Legally Binding Contract

indicates that they are not required to sign anything because ‘everything they need to know is up on the wall’ and they have to hurry because ‘the session starts pretty much as soon as they’ve paid and had the safety briefing’.

Harvey and Louis look around and spot the sign. As they are walking over the countdown siren sounds, indicating their session is about to start. The sign is 70cm wide and 50cm high and bright orange. The heading of the sign is large and bold, while the terms of participation on the sign are printed in size 14 ‘Courier New’ font. The text colour is black. One of the terms, Term 18, reads:

  1. Players must immediately leave the laser skirmish room when the session end announcement is made over the PA system. Any player who remains in the laser skirmish room for longer than one (1) minute after the session end announcement must pay a delay fee of $10.00, payable on departure.

Harvey and Louis commence their one-hour session. When the session end announcement is made, they begin making their way out of the centre. They are laughing and joking about their experience and recounting some of the funny moments, walking casually at slow pace. When they finally exit the laser skirmish room the staff member indicates that they took over a minute to leave and must each pay $10. Harvey and Louis are furious about this, as it not only seems absurdly unfair but they did not know about this requirement.

The next day, Harvey, Louis and Donna meet up at the office to discuss business matters when Donna receives a phone call from the cleaning company they hired to shampoo and steam clean the carpet throughout the building the following week. The company, Reynolds Contractors Pty Ltd, had already visited and quoted the job for $1,800. They were the only company contacted that said they were able to do the job within the next two weeks. Donna had already paid the fee in full. The Reynolds

representative apologetically indicates that the price of the chemical required to treat the carpets has increased and they will require payment of an additional $220 before they can proceed. Donna is angry about it but knowing that the firm is due to open in a fortnight, and that the foul odour of the carpet will leave a negative impression with the important clients scheduled to meet with them on the first day of trade, she agrees to pay the sum. The next week, when the carpet is cleaned, Reynolds sends an invoice for the additional $220. Donna refuses to pay, saying she shouldn’t have to.

Please provide answers to the following questions:

  1. Did Donna and Cam create a binding contract for the purchase ofthe software?
  1. AreHarvey and Louis contractually bound to pay the delay fee to Flash Fort?

  2. Are Donna, Harvey and Louis required to pay the extra $220 for the carpet cleaning?

Background of the Accounting and Finance Partnership

1. Donna and others decided to purchase the latest and best accounting software in order to offer their clients with the most efficient and sophisticated services. The task to find suitable software was given to Donna. Donna visited a specialist IT company named Number Crunchers and spoke with Cam who was one of the sales staff. On the basis of requirements of the new firm, Cam recommended the ‘MoneyMakers’ corporate accounting software package which included 24/7 IT support. However, the package she offered was advertised on the website of the company at $15,649, Donna asked her to check with other partners in order to take their consent. She left her mail address and phone number with Cam and told her to call her within next two days.

After the other two agreed on the package and told Donna to go ahead and order the software. The contact between Donna and Cam occurred through text conversation in which, Cam offered a special deal of $14,300 under catalogue sale, to which Donna agreed.

Issue: Was there a binding contract between Donna and Cam for the purchase of the software.

Law: There are four components of a legally binding contract which are offer and acceptance, consideration, intention to create legal relations and completeness of terms. The offer should be in writing, oral or implied through conduct. The contracts are of two types i.e. unilateral or bilateral. The bilateral contract requires the acceptance by communication discussed shortly by the party accepting the contract.


The offers should not be confused with ‘Invitation to treat’ as in Australian Woollen Mills Pty. Ltd. v. The Commonwealth [1954] HCA 20, the court held that making a statement on government policy could not be considered as a legally binding contract (Austlii, 2018).

Application: It was just an offer presented by Cam before Donna, on which she agreed in her text conversation. Furthermore, it was a kind of invitation of treat, in which Cam was introducing her to the Catalogue sale and discounts due to it. Donna just agreed and it cannot create legally binding contract between the two, because it was just a statement in that regard.

Conclusion: No, there is no existence of legally binding contract as it was an informal conversation between the two in which, Cam offered discounted offers regarding the software.

2. Issue: Were Harvey and Louis contractually bound to pay the delay fee to Flash Fort.

Formation of a Legally Binding Contract

Facts: When Louis and Harvey went to Flash Fort for fun games, the entrance was dark with only fluorescent lights illuminating the surroundings. When they approached the counter, they were told to write their names and follow certain safety instructions before paying and suit up for the session. The full terms of participation were on the other side of the entrance labelled with orange sign as ‘Mission Rules’. Being informed by the staff member, they did not sign anything and they were asked to hurry, as the session started as soon as they had paid and had safety briefing. Before they could look around and spot the sign, they heard the countdown siren which indicated that the session was about to start. However, the font size and colour of the sign was sufficiently clear to be read, they commenced their one-hour session (Case Briefs, 2018).


Law: In case of breach of contract, the injured party is entitled to seek damages but breach must be proved by the injured party. In case of formation of contract, when an offer is made and it is accepted by the other party with an intention to enter into a legally binding contract, the formation of contract takes place.

The breach of terms of contract leads to compensation to the injured party but, the loss must not be too remote. In the contract, the terms and conditions of the contract must be clearly visible and the party to the contract must be informed about the same. The terms of contract matter and it can be in express terms, implied terms or in associated rules of interpretation. However, contracts of significance are in writing and signed by both the parties known as express terms, terms can also be mentioned through various ways of communications such as through letters, mails, phone calls and such others and could also be contained in websites or sign boards on entrances.

The party to the contract is considered as bound to the terms and conditions included in the contractual agreement, if they have signed the contract regardless of whether they have read or understood the terms mentioned in the contract or not. In case of L’Estrange v F Graucob Ltd [1934] 2 KB 394, the court held that the party is considered to be as bound to the terms and conditions of the contract if they have signed the contract (Ball, 2018).

Incorporation of Terms by Notice

In the incorporation of terms by notice, the party to the contract not relying on the signed written contract while dealing with the customers, might incorporate terms governing the transaction through notice or sign boards at the entrance. However, the incorporation of the terms depends on two factors i.e. if the displayed or delivered terms are available to the party being made to bind to the contract and, whether reasonable steps have been taken to bring the terms of the contract to the notice or consideration of the party being made to bind to the contract. In this context, the party to the contract must have actual knowledge or notice of the terms of the contract.


Furthermore, time also matters a lot as in case of Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197, the terms being made available to the party prior to the contract being made could bind the party to the contract (Australian Contract Law, 2018). The terms being informed to the party after formation of contract could not be binding as in case of Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 (Uganda Christian University Law Library, 2016).

Application: The terms of the contract were placed at the opposite side of the entrance. When Louis and Harvey asked the staff member, they were told not to sign anything and all the instruction were placed on the wall and they were informed that the session was going to start as soon as they paid and had safety briefing, so they should hurry and do not waste time.

However, the sign board was visible enough to look at it, but both of them were not provided with sufficient time to go through it. As soon as they paid the fee and had safety briefing, they were to enter the session hurriedly. If there were terms related to delay fee, the customers must be informed specifically about it before entering into the contract or before paying any consideration for entering into the contract.  

First of all, in case of delay fee terms, the party to the contract must be informed much before entering into the contract or at the time of the contract formation otherwise, party cannot be held liable to bind to the contract and could not be bound to pay delay fee when they have not been informed about the same. Secondly, there was not enough time with them to look at the terms on the opposite side of the entrance, and there was not enough time between the start of session and payment of fees. So, Harvey and Louis were not able to go through the terms as they were required to enter the session.

Analysis of the Contractual Issues in the Case

Conclusion: Harvey and Louis cannot be held liable to pay the delay fee to the Flash Fort as they were not informed about the relevant term before or at the time of entering into the contract and even afterwards, they were not provided with sufficient time to go through the terms. So, they cannot be held liable to pay delay fee.

3. Issue: Were Donna, Harvey and Louis liable to pay the extra $220 for the carpet cleaning.

Law:  In the formation of contract, the elements of contract are considered to as highly significant. The offer and acceptance by the parties to the contract are considered to be of value, when consideration takes place in return of the promise in order to make the contract legally binding. The consideration is essentially any kind of exchange between the parties to the agreement, which might involve money, goods or services. It also means that something of significant value should be given by each party to the contract so that any kind of loss could be incurred to each of the party in case of breach of contract.


However, when the promises are sealed and signed between the parties, there is often not any requirement of consideration and the promises can be made enforceable even without consideration. The consideration should exist in contract with offer and acceptance with the legal intention of the parties to the contract.

There are two elements of consideration which are benefits or detriment and bargain. The valuable consideration, from the point of view of law, should consist some right, interest, benefits accruing to one party, or some forbearance, detriment, loss or responsibility, given, suffered, or undertaken by the other as in case of Currie v Misa (1875) LR 10 Ex 153 (Legal Secretary Journal, 2016). Bargain means an act or forbearance of one party or the promise is the price for which, the promise of the other is bought and promise in this manner given for value is enforceable (ACCC, 2018).

There are three requirements of consideration which are sufficiency, currency or past consideration rule and the movement from the promisee. The consideration must have sufficient legal value but need not be adequate i.e. fair price. Something given before a promise is made, cannot be considered as good consideration for the promise and unless the services are performed at the request of promisor and, promisor later promises to pay for the services. The consideration must move from the promise which means that the consideration stipulated by the promisor must be provided by the promise and it need not to move to the promisor (Small Business Development Corporation, 2018).          

Conclusion

Application: Donna, Harvey and Louis hired a cleaning company named Reynolds Contractors Pty Ltd. to shampoo and clean the carpet throughout the building, the following week. The company visited the building and quoted the job for $1800 and agreed to complete the job within next two weeks. They paid the fee completely after which, the representative of the company indicated that the price of the chemical required for the treatment of carpets has increased, for which, they will have to pay additional costs of $220 before they could proceed. Donna agreed to pay the sum but after the completion of work denied to pay the additional amount.

First of all, the contract was initially formed between them at the cost provided by the contractors in quotations, for which, Donna paid the entire amount in advance. Once when the contract gets finalized between two parties, terms of contract or fees cannot be changed with the increase of costs of anything. The terms of the contract are required to be followed from the date of initiation of contract and it cannot change with the changes in costs in the market. The initial contract was signed after visiting the building and just before providing the services associated with the contract, the party cannot demand more fees even if they have to bear the loss. So, Donna, Harvey and Louis cannot be held liable to pay the extra costs as they signed the contract at initial costs and it is not their fault if cost of the chemical increases. It is the duty of the company to provide its services as per the costs decided.

Conclusion:  Donna, Harvey and Louis cannot be held liable to pay the extra $220 for the carpet cleaning because they have entered into contract at initial costs decided by the company and, increasing costs of chemical is the liability of the company and not the contracting party.

References

ACCC, 2018. Contracts & agreements. [Online] Available at: https://www.accc.gov.au/consumers/contracts-agreements [Accessed 19 September 2018].

Austlii, 2018. Case Notes. [Online] Available at: https://classic.austlii.edu.au/au/journals/ResJud/1957/10.pdf [Accessed 19 September 2018].

Australian Contract Law, 2018. Australian contract and consumer law. [Online] Available at: https://www.australiancontractlaw.com/ [Accessed 19 September 2018].

Ball, J., 2018. L’Estrange v Graucob [1934]. [Online] Available at: https://webstroke.co.uk/law/cases/lestrange-v-graucob-1934 [Accessed 19 September 2018].

Case Briefs, 2018. Hadley v. Baxendale. [Online] Available at: https://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-farnsworth/remedies-for-breach/hadley-v-baxendale/ [Accessed 19 September 2018].

Legal Secretary Journal, 2016. The Importance of Currie v. Misa in Contract Law. [Online] Available at: https://www.legalsecretaryjournal.com/The_Importance_of_Currie_v._Misa_in_Contract_Law [Accessed 19 September 2018].

Small Business Development Corporation, 2018. Contracts and agreement. [Online] Available at: https://www.smallbusiness.wa.gov.au/business-advice/legal-essentials/contracts-and-agreements [Accessed 19 September 2018].

Uganda Christian University Law Library, 2016. Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. [Online] Available at: https://uculawlib.files.wordpress.com/2016/09/thornton_v_shoe_lane_parking_ltd_-_1971_1_-1.pdf [Accessed 19 September 2018].

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