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Important Elements of Contract Formation

Whether a contract was formed between Eddo Products Co and Vestley Co, or not?

A contract indicates the exchange of promise taking place between the parties to the arrangement which forms the base of the contract. In a contract, one party promises to do something or to take some obligation and the other party promises to pay the consideration in exchange (Lindgren, 2011). It can be drawn in a manner where the terms of the promise are exchanged in an oral manner and this is known as a verbal contract. The other one is known as a written contract, where the terms of the promise are exchanged in written manner and the document on which these have been stated, are signed by the parties to the contract (Ayres and Klass, 2012). In order to form a contract, certain important elements are required to be present and these include an offer, an acceptance, consideration, intention, clarity and consent. Even if one of these elements is not present, a contract is not formed and hence, is not enforceable (Clarke and Clarke, 2016).

The first step for forming the contract is the offer being made by one party to the other party. In order to form a contract, it is required that one party offers the other party some term or some promise, which shows the offer making party’s interest or the willingness to create a contract (Turner, 2014). It is very important that the offer is distinguished from an invitation to treat, which shows the intention of the parties to initiate negotiations, instead of a contract. An offer shows particular terms and the offeror denotes the intention that in case the offer is accepted, a contract would be formed and it would result in a binding and enforceable contract after acceptance (Lambiris and Griffin, 2016).

An invitation to treat is hence, considered as pre-offer communication. The intention of getting offers from the parties is represented by an invitation to treat and hence, this does not create a binding obligation (Latimer, 2012). The difference between an offer and an invitation to treat can be clarified with the help of the case law of Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1. In this case, through the advertisement, a unilateral offer was made, which could be accepted by performing the terms of the said advertisement. So, instead of being an invitation to treat, this was an offer E-Law Resources, 2017a). Though, in general, the advertisements contained in the magazines or in the newspaper articles are not considered as being an offer. This was held in the case law of Partridge v Crittenden [1968] 1 WLR 1204, where the advertisement was deemed as an invitation to treat, instead of an offer and so, the sale of product is not obligated in such cases E-Law Resources, 2017b). In Harvey v Facey [1893] UKPC 1, AC 552, the price written in the subsequent telegram was considered to be a request of information, instead of an offer (Poole, 2016).

Offer and Invitation to Treat

The next step in the contract formation is acceptance, which denotes that the party has accepted the offer which has been made by the offering party. The offer has to be accepted in the manner in which it was made in the exact manner (Abbott, Pendlebury and Wardman, 2007). And if any of the terms of the offer are changed, modified, amended or altered, the offer is not deemed as accepted and instead the communication is deemed as a counter offer. This was held in the case law of Hyde v Wrench [1840] 49 ER 132 and once a counter offer is made, the original offer expires (Marson and Ferris, 2015). In Gibson v Manchester City Council [1979] UKHL 6, it was held by the House of Lords that the agreement can exist only when the acceptance is properly reflected through a clear offer. “May be prepared to sell” in this case was deemed as notification of price. And as this was not a distinctive offer, it was held that an accepted was not needed in this case (British and Irish Legal Information Institute, 2017a).

The general rule of acceptance is that the date on which the acceptance is communicated, is deemed as the date of acceptance. Hence, the date on which the communication of acceptance reaches the offering party, is the date of acceptance. However, the postal rules are an acceptance to this rule. As per these rules, the date on which the acceptance is posted by the accepting party, is deemed as the date of acceptance (O’Brien, 2007). This is because the postal office is deemed as an implied agent of the party which gave the offer (Bits of Law, 2017).  Hence, the date of receiving the post has no relevance. Holding the validity of these rules, in Adams v. Lindsell (1818) 106 ER 250, the acceptance was held to be enforceable (Gibson and Fraser, 2013). The postal rules of acceptance are also applicable on the email communication. Under the Electronic Transactions Act, 1999 (Cth), section 14, the date on which the email leaves the device of the sender, is the date of acceptance and offer (Federal Register of Legislation, 2011).

The third step in contract formation is consideration. It is crucial that the consideration is present and not past. The amount of consideration is mutually decided between the parties and is accepted as long as it carries an economic value in it. In short, the consideration has to be sufficient and not adequate (Blum, 2007). In the case law brought before Lord Somervell, it was held that owing to the condition precedent, the three wrappers had the required economic value, in the matter of Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87 (Mulcahy, 2008).  

Acceptance and Postal Rules

The other requirements of contract formation include that the parties must have the contractual capacity to enter into a contract. So, they should have the legal age and sound mind. There is also a need for the clarity with regards to the terms of the contract. This is because the terms of the contract are the base for the contract and on these terms only, the disputes arise or the performance of the contract is done. The parties are required to have the intention of creating legal relations and in absence of such intent, the contract cannot be formed (Andrews, 2015).

In the given case study, the communication sent on Nov 1st would be deemed as an invitation to treat as the communication which has been sent, denotes negotiations. This is because, unlike Carlill v Carbolic Smoke Ball Company, this communication cannot be accepted through performance. Further, on the basis of Partridge v Crittenden, Vestley Co is not under and obligation to sell. The communication sent on Nov 6th would be deemed as a supply of information, as the different sizes of cans and other details of the order were communicated in this order. And on the basis of Harvey v Facey, this would not be deemed as an offer.

The communication sent through the email of Nov 13th, would be deemed as an offer. And this would be the date of offer on the basis of section 14 of the Electronic Transactions Act. The communication sent on Nov 19th would not be deemed as a distinctive offer on the basis of Gibson v Manchester City Council, as only the can sizes are discussed in this communication. The reason for not deeming it as a counter offer is that no new offer was made, and even the terms of the offer have not been changed and this communication was made only to bring clarity to the offer. The offer would be deemed to be accepted on Nov 16th and this would be the date of acceptance. The communications reveal a clear intention of the parties. There is a consideration of $900 peer tone. And there is nothing to suggest that the parties did not have the contractual capacity. So, a contract was indeed formed in this case.

Conclusion 

Hence, a contract was formed between Eddo Products Co and Vestley Co.

Were the terms of the contract clear, or not? And if they were clear, what were these terms?

Consideration and Contractual Capacity

(Same as the one given under issue 1)

The terms were very clear between the parties. The offer was made for supply of one tone of canned mango for the Grade B fruit which was at the rate of $ 900 per tonne. And the can sizes had to be of a fair distribution size. Further, the delivery would be in equal monthly shipments which would begin from Feb 2nd. And this contract would be subjected to the terms of International Fruit Trading Association.

Conclusion 

As a contract was formed in this case, it was based on the terms summarized above.

Whether Con can successfully sue Becky for the loss of his car, or not?

Exclusion clauses are such clauses in the contract through which the clause inserting party is able to extinguish or reduce their liability. For an exclusion clause to have validity, it needs to be inserted into the contract in a legal and proper manner. If the exclusion clause is entered into after the contract is signed, it has no validity. The exclusion clauses, though can limit the liability, but it cannot restrict the application of any law (Abbott, Pendlebury and Wardman, 2007). However, where the exclusion clause is contained the contract signed by the parties, it would be valid, irrespective of the fact whether the parties have read the clause or not, as was held in the case of L'Estrange v Graucob [1934] 2 KB 394 (Swarb, 2017).

When an exclusion clause is contained at a place other than the contract, it is crucial that it is brought to the attention to the party against which it is being inserted, or else, it would not have any legal validity. In the case law of Thornton v Shoe Lane Parking Ltd (1971) 2 WLR 585, the parties were not given a reasonable notice that the exclusion clause was contained at the ticket’s backside, due to which, the exclusion clause held no validity. Similar ruling was given in the case law of Olley v Marlborough Court Ltd (1949) 1 KB 532, where the exclusion clause was contained at the ticket’s backside. As the plaintiff had no knowledge about this exclusion clause and there was also an absence of reasonable notice, the exclusion clause held no validity. This was because the exclusion clause was at a different place which was not brought to the reasonable notice of the party against which it was being inserted (Mulcahy, 2008).

Clarity and Intention

In the given case study, an exclusion clause was provided by Becky, as a result of which, her liability was limited along with that of her employees for any kind of damage, harm or loss. This exclusion clause was mentioned at a place which could be reached only after a person went on to remove their car from the parking station and not at the time of entering the station. As this exclusion clause was at another place, it was the duty of Becky to tell Con about the same. As this was not done, the notice displayed on the wall containing the exclusion clause, would not be valid.

Further, the exclusion clause contained in the ticket would also have no validity. This is because the exclusion clause was not brought to the notice of the parties. The receipt was meant to indicate the amount which was paid for the parking and was not meant to contain an exclusion clause. Even when the same was contained in the receipt, it had to be brought to the notice of the party. Hence, on the basis of Thornton v Shoe Lane Parking Ltd and Olley v Marlborough Court Ltd, the exclusion clause would not be valid. Due to these reasons, Becky would not be able to evade the liability arising out of the theft of Con’s car which was parked at the suburban parking station, owned by Becky.

However, the ticket which the individuals get upon entering the parking lot, would help Becky is evading her liability as this ticket contained that the conditions of parking at displayed on premises. And unlike the cases of Thornton v Shoe Lane Parking Ltd and Olley v Marlborough Court Ltd, this was contained at the front of the ticket, and hence, it would be deemed as having being reasonably been brought to the attention of the parties.

Conclusion 

Hence, Con would not be successful in suing Becky for the loss of his car due to the exclusion clause being referred at the front of the ticket, which the individual received upon entering the parking lot.

Whether Debbie can successfully sue Becky for the loss of his car, or not?

Negligence denotes the breach of duty of care, which was owed by one person, to another, due to the first person undertaking such a task, which has the possibility of harming or injuring the other person (Greene, 2013). It is crucial to show that a duty was present, which was breached and which resulted in substantial loss to the other party. In the case of Donoghue v Stevenson [1932] AC 562, owing to the negligence of S, which resulted in D falling sick, S was ordered to compensate D (British and Irish Legal Information Institute, 2017b).

Validity of Exclusion Clauses

An employer, due to the applicability of the agency law, is liable for the tortious acts committed by its employees. This liability is raised when the negligent act is committed during the course of employment of the employee, as was held in the matter of Storey v Ashton (1869) L. R. 4 Q B 476 by the court of law (Kotecha, 2014).

The exclusion clauses limit the liability from the loss for the purpose for which they have been mentioned or inserted. In this case study, the exclusion clause had been inserted for the purpose of damage, harm or loss caused to the vehicle brought in the parking garage and not for the exclusion of liability for the harm caused to the person parking the vehicle.

In this case, the negligence of Tom is very clear as he had to be careful while driving the car. He owed a duty of care to the people who were in his ambit of car driving and this duty was breached by driving over Debbie’s foot. And as Tom is an employee of Becky, on the basis of agency law, she would be liable for the tortious act of her employee. So, she would have to compensate Debbie for her loss on the basis of Donoghue v Stevenson.

Conclusion 

Hence, owing to the negligence of Tom, who is an employee of Becky, she would be held liable for the injury caused to Debbie and would have to adequately compensate her. And the exclusion clause, owing to its limit, would not help her in evading her liabilities.

Whether or not, Friedrich is liable for the payment of additional amount of parking?

In case the terms of the contract are not upheld by the contracting parties, it is known as a breach of contract, due to which the parties have to pay monetary compensation to the non-breaching party (Latimer, 2012). The purpose of awarding remedies in cases of breach of contract is to put the aggrieved party in the position where the contract had been properly performed, and this was held in the case law of Addis v Gramophone [1909] AC 488 (E-Law Resources, 2017c).

As it has already been established, that the exclusion clause was valid, it means that the clauses contained in it were also valid. This clause stated that extra charges were applicable for overnight parking. As Friedrich’s car was parked overnight, he would be liable for payment of the contractual obligation undertaken through the exclusion clause.

Conclusion 

Hence, Friedrich is liable for the payment of additional amount of parking on the basis of the terms contained in the exclusion clause. Otherwise, he would be held in breach of contract.

References 

Abbott, K., Pendlebury, N., and Wardman, K. (2007) Business Law. 8th ed. London: Thomson.

Andrews, N. (2015) Contract Law. 2nd ed. UK: Cambridge University Press

Bits of Law. (2017) Acceptance: Postal Rule. [Online] Bits of Law. Available from: https://www.bitsoflaw.org/contract/formation/study-note/degree/acceptance-postal-rule [Accessed on: 22/07/17]

Blum, B.A. (2007) Contracts: Examples & Explanations. 4th ed. New York: Aspen Publishers.

British and Irish Legal Information Institute. (2017b) Donoghue v Stevenson [1932] UKHL 100 (26 May 1932). [Online] British and Irish Legal Information Institute. Available from:

https://www.bailii.org/uk/cases/UKHL/1932/100.html [Accessed on 22/07/17]

British and Irish Legal Information Institute. (2017a) Gibson v Manchester City Council [1979] UKHL 6 (08 March 1979). [Online] British and Irish Legal Information Institute. Available from: https://www.bailii.org/uk/cases/UKHL/1979/6.html [Accessed on: 22/07/17]

Clarke, P., and Clarke, J (2016) Contract Law: Commentaries, Cases and Perspectives. 3rd ed. South Melbourne: Oxford University Press.

E-Law Resources. (2017a) Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 Court of Appeal. [Online] E-Law Resources. Available from:

https://www.e-lawresources.co.uk/Carlill-v-Carbolic-Smoke-Ball-Co.php [Accessed on: 22/07/17]

E-Law Resources. (2017b) Partridge v Crittenden (1968) 2 All ER 421. [Online] E-Law Resources. Available from: https://www.e-lawresources.co.uk/Partridge-v-Crittenden.php [Accessed on: 22/07/17]

E-Law Resources. (2017c) Addis v Gramophone [1909] AC 488 House of Lords. [Online] E-Law Resources. Available from: https://e-lawresources.co.uk/cases/Addis-v-Gramophone.php [Accessed on: 22/07/17]

Federal Register of Legislation. (2011) Electronic Transactions Act 1999. [Online] Federal Register of Legislation. Available from:

https://www.legislation.gov.au/Details/C2011C00445 [Accessed on: 22/07/17]

Gibson, A., and Fraser, D. (2014) Business Law 2014. 8th ed. Melbourne, Pearson Education Australia.

Greene, B. (2013) Course Notes: Tort Law. Oxon: Routledge.

Kotecha, B. (2014) Q&A Torts. Oxon: Routledge.

Lambiris, M., and Griffin, L. (2016) First Principles of Business Law 2016. Sydney: CCH.

Lindgren, K.E. (2011) Vermeesch and Lindgren's Business Law of Australia. Chatswood, NSW: LexisNexis Butterworths.

Marson, J., and Ferris, K. (2015) Business Law. 4th ed. Oxford: Oxford University Press.

Mulcahy, L. (2008) Contract Law in Perspective. 5th ed. Oxon: Routledge.

O’Brien, R. (2007) Analysis of the Postal Rule. [Online] Cork Online Review. Available from:

https://corkonlinelawreview.com/editions/2007/COLR%202007%2013%20O'Brien.pdf [Accessed on: 22/07/17]

Poole, J. (2016) Textbook on Contract Law. 13th ed. Oxford: Oxford University Press.

Swarb. (2017) L’Estrange v F Graucob Limited: CA 1934. [Online] Swarb. Available from: https://swarb.co.uk/lestrange-v-f-graucob-limited-ca-1934/ [Accessed on: 22/07/17]

Turner, C. (2014) Unlocking Contract Law. 4th ed. Oxon: Routledge.

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