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Contractual Issues Arising In The Eccles And Moriarty Case Study

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Question:

Analysis the Contractual Issues arising in the Eccles and Moriarty Case Study.

 

Answer:

Introduction

The scenario provided describes a transaction for the trade of Nepalese jade figurines between Eccles (the buyer) and Moriarty (the seller). The transaction begun after Eccles received a circular in the mail advertising the sale of the figurines. The facts of the case raise various issues under contract law; the following discourse will highlight and analyse each of these issues independently in order to determine the rights and liabilities of both parties involves. The main issue in question being whether Eccles can return the figurine and claim a refund or whether Moriarty is entitled to sue for the balance.

Invitation to Treat

Issue: Is Moriarty bound by the ‘special offer’ sent to Eccles by mail on 1st March and Eccles subsequent acceptance?

Principles: The law requires that for a contract to be valid an agreement must exist; the elements of an agreement include an offer and subsequent acceptance of said offer;[1] there must be a ‘meeting of minds’ as illustrated in Smith v Hughes (1871).[2] An offer, however, should not be mistaken for an invitation to treat which would be the invitation for further negotiation and not a willingness to be committed should a buyer respond in the affirmative.[3]  Advertisements, more often than not, are taken as invitations to treat; this was illustrated in Pharmaceutical Society of Great Britain v Boots (1953).[4]  In this case, was of the opinion that a contract would not be complete merely because a customer picked goods and placed them in their basket, the seller or their agent would have to accept that the goods are indeed for sale.[5] However, where the conduct of the party can be construed to show intention, as in the Carlill v Carbolic Smoke Ball Co  (1893) case, then the seller will be bound by the agreement should the buyer accept the offer.[6]

 


Application: Having considered the standing of the law on offers and invitations to treat; Moriarty sent out circulars by post to potential buyers, Eccles happened to be one of the recipients. Circulars are a means of advertisement as catalogues, price lists among others; these, in the same manner as displays in shops, would be considered an invitation to treat.[7] This is because; the seller on issuing them expresses no intention to be bound but simply invites buyers to negotiate further. The same can be said for the circular issued by Moriarty, it was sent as an advertisement; it is, therefore, an invitation for Eccles to make an offer which he did by placing an order, Moriarty could then chose to accept or reject Eccles offer.

Conclusion: Moriarty made an invitation and therefore acceptance would not bind them to the agreement but rather create an offer from Eccles.

Counter Offer or Misleading Conduct

Issues:

  • What is the effect of the typographical error listing the price as $250 instead of $350?
  • Does it constitute a counter offer?
  • Is Moriarty liable for misrepresentation?

Principles: A counter offer is a presentation of a different set of terms or the alteration of already existing but important terms to the contract.[8] Lush J in Stevenson, Jacques & Co v McLean (1880)[9] differentiated between a mere request for clarification or added information and a counter-offer. When a counter-offer is made, the counter-offeree can accept or reject the counter offer, of which both options revoke the original offer. As illuminated in Hyde v Wrench (1840)[10], the counter offer serves to effectively terminate the original offer unless the offeror reaffirms it expressly after rejecting the counter offer. As such, bringing up a new price would constitute a counter offer as it alters a principle term in the original agreement. If and when accepted, a new contract is formed binding on both parties.

Additionally, it is important to note that the law prohibits parties from providing false information to induce another party to engage in the contract; such false information would be considered a misrepresentation.[11] According to the Competition and Consumer Act 2010 (Cth), misrepresentations on quality, value, use and even price would be considered an offence that could lead to penalties being visited on the offender.[12] As illustrated in ACCC v Audi Australia Pty Ltd (2007), where an advertisement as to a purchase price is misleading, the buyer can opt to rescind the contract or make a claim for damages. However, where they discover the misrepresentation and proceed to complete the contract then they shall be bound by the new terms. A misrepresentation may be innocent, where the seller believes the statement to be true, or fraudulent, where it was made with the knowledge that it was untrue. A seller who makes a misrepresentation believing the statement to be true can rely on their innocence as a defence.[13]

 


Application: Moriarty on 6th March issued a reply to Eccles’ order citing a typographical error in the original circular; as a result, the price was increased to $100. This new price could be seen as a counter offer and when Eccles decided to proceed then a new contract was formed. Additionally, the previous information on price had been false, a falsehood Eccles saw as questionable marketing practice. On this ground, and at this juncture, Eccles could have opted to rescind the contract and request a refund. If Moriarty issued the statement while aware of the error then they would be engaging in fraud which would make them liable to penalties as an offence in law. However, if they were honestly unaware they would rely on innocent misrepresentation as a defence.

Conclusion: The typographical error brought about new terms thus cancelling the original offer, Eccles’ agreement to the new price on 9th March created a new agreement. Moriarty is only liable in so far as they were aware of the misrepresentation, otherwise, they can rely on innocent misrepresentation as a defence.

The Postal Rule

Issue: What is the effect of Eccles communication on 9th March and his subsequent decision to rescind the contract?

Principle:

In contract law, it is important that all responses are communicated so that they can be effective. An offer may describe the mode in which responses may be received or communication made, if this is not specified it is assumed that the means used to make the offer would suffice as a mode of communication.[14] Where a reply by post is required but not specified as the only means of communication then the offeree can opt for a more instantaneous means of response. However, should a delay arise then the risk and subsequent consequences are borne by the offeree.[15] In the case of post or other non-instantaneous modes of communication, acceptance occurs when the letter is posted. This was the holding in Bressan v Squires (1974) where a contract provided that communication of acceptance could be done by post addressed to the seller. Where the parties contemplate, either impliedly or expressly, that communication can be done by post then communication will be deemed to have occurred upon sending the letter not receipt.[16]

 


In Bryne & Co v Leon Van Tienhoven & Co (1880), the defendants posted a letter withdrawing the offer; this information did not reach the plaintiff until after they had already issued and confirmed acceptance. The court found the letter of withdrawal ineffective stating the contract was completed by the subsequent acceptance.[17] Revocation, therefore, must be received and understood while acceptance is binding upon sending and not receipt.[18] Additionally, termination must be done prior to acceptance or commencement of performance;[19] where acceptance has occurred or performance commenced, the party revoking or terminating the contract may be liable for breach and as such subject to pay compensation by way of damages.

Application:

Eccles accepted the new price, by sending a reply with his payment enclosed. As soon as the post was sent then it is deemed that acceptance had been communicated and as such the contract completed binding both parties. As the mode of communication had been by mail throughout the transaction then it is implied that this was an accepted means for both parties. As such, whether Moriarty had received the letter or not does not in any way negate the Eccles’ acceptance on the 9th of March. Additionally, after the acceptance by post then neither of the parties can purpose to terminate the contract without consequences. The terms of the new contract were such that, where Eccles did not communicate by 10th March then Moriarty would proceed with the contract. This, however, is not in line with the spirit of the rules of acceptance which require that acceptance be communicated. Furthermore, Moriarty sent the figurine before the end of 10th March; the phrase ‘no later than’ would mean that this would be the last day allowed for communication. Regardless, Eccles communication on 9th March bound him to the contract.

 

Conclusion:

Moriarty can sue for the balance as a contract existed as of 9th March, however, Eccles can rely on the doctrine of Misrepresentation citing Moriarty’s conduct to rescind the contract and seek a refund by way of damages.

 

References

A Articles/Books/Reports

Andy Gibson and Douglas Fraser, Business Law 2014, (Pearson Higher Education AU, 2013)

ACCC, Advertising and selling guide: False or misleading claims Australian Competition & Consumer Commission https://www.accc.gov.au/publications/advertising-selling/advertising-and-selling-guide/avoid-misleading-or-deceptive-claims-or-conduct/false-or-misleading-claims

Ewan Mckendrick and Qiao Liu, Contract Law: Australian Edition (Palgrave Macmillan, 2015)

Legal Services Commission, False or misleading representations (22 February 2013) Law Handbook https://www.lawhandbook.sa.gov.au/ch10s03s03s03.php

Legal Services Commission, Misrepresentation (2 March 2009) Law Handbook https://www.lawhandbook.sa.gov.au/ch10s02s10.php

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

Neil Andrews, Contract Law (Cambridge University Press, 2015)

B Cases

Bressan v Squires [1974] 2 NSWLR 460.

Bryne & Co v Leon Van Tienhoven & Co (1880) LR 5 CPD 344

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Hyde v Wrench [1840] 49 ER 132]

Pharmaceutical Society of Great Britain v Boots [1953] 1 All ER 482

Smith v Hughes (1871) LR 6 QB 597Stevenson, Jacques & Co v McLean [1880] 5 QBD 346

Tinn v Hoffman & Co  (1873) 29 LT 271.

LegislationCompetition and Consumer Act 2010 (Cth)

Ewan Mckendrick and Qiao Liu, Contract Law: Australian Edition (Palgrave Macmillan, 2015) 26.

 Smith v Hughes (1871) LR 6 QB 597.

Neil Andrews, Contract Law (Cambridge University Press, 2015) 37.

Pharmaceutical Society of Great Britain v Boots [1953] 1 All ER 482. Ibid.

Carlill v Carbolic Smoke Ball Co  [1893] 1 QB 256Andy Gibson and Douglas Fraser, Business Law 2014, (Pearson Higher Education AU, 2013) 339.

Andrews, above n 3, 57.

Stevenson, Jacques & Co v McLean [1880] 5 QBD 346

Hyde v Wrench [1840] 49 ER 132]

ACCC, Advertising and selling guide: False or misleading claims Australian Competition & Consumer Commission https://www.accc.gov.au/publications/advertising-selling/advertising-and-selling-guide/avoid-misleading-or-deceptive-claims-or-conduct/false-or-misleading-claims

Competition and Consumer Act 2010 (Cth), s 29; Legal Services Commission, False or misleading representations (22 February 2013) Law Handbook https://www.lawhandbook.sa.gov.au/ch10s03s03s03.php

Legal Services Commission, Misrepresentation (2 March 2009) Law Handbook https://www.lawhandbook.sa.gov.au/ch10s02s10.php

Paul Latimer, Australian Business Law (CCH Australia Limited, 2012) 332.

Tinn v Hoffman & Co  (1873) 29 LT 271.

Bressan v Squires [1974] 2 NSWLR 460.

Bryne & Co v Leon Van Tienhoven & Co (1880) LR 5 CPD 344

Andy Gibson and Douglas Fraser, Business Law 2014, (Pearson Higher Education AU, 2013) 349.Ibid, 348.

OR

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