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Question:

Discuss about the Problem in Consumer Contract Law.
 
 

Answer:

Introduction:

A contract is an agreement enforceable at law. A contract must include the following elements: offer, consideration, certainty, consideration, intention and capacity. The terms of a contract determine the rights and responsibilities of the contractual parties. These terms may be express terms or implied terms. An express contract refers to the terms that are articulated either in writing or verbally[1]. An implied contract is a contractual term that is not stated in writing.

The contracting parties usually discuss express terms before concluding their contract. Express terms are simple when they are in writing[2]. The terms are less clear when they are expressed in the form of pre-contractual statement as it becomes very difficult to classify statements that are made before entering into a contract. The Australian courts while interpreting the express terns of the contract shall construe the ordinary and plain meaning of the terms[3].

These terms are terms that are implied into a contract irrespective of the fact that the contracting parties have not articulated these terms before concluding the contract. The implied terms may be implied by statute or at Common law[4]. Terms may be implied into a contract based on terms implied by fact and terms implied by law. The conditions pertinent in order to imply a term into a contract has been set out in BP Refinery (WesternPort) Pty Ltd v Hastings Shire Council [1977].

  • the term must be obvious to the extent that ‘it goes without saying’;
  • the term must be reasonable and just;
  • it must not be in contrary to any express term of the contract;
  • it is capable of being clearly expressed;

At common law, the terms are considered implied based on the actual intent of the parties, as such terms may be indispensable to make the contract effective. A term would be implied by fact if in the absence of the term the contract would be ineffective. In Shirlaw v Southern Foundaries [1926] ltd [1939] it was held that a term may be implied if it is so obvious that it goes without saying, then such term is not required to be expressly mentioned. Further, the term must be expressed clearly and there must be a reasonable certainty in its operation. Furthermore, the term must not be in contrary to the express terms of the contract and must not include any matter that has been dealt with by the contract itself[5].

The terms of a contract may be further classified as a warranty or a condition. It is pertinent for the parties to the contract to recognize carefully the terms that are conditions and those that are the warranties. In the event of a breach of contract, it is imperative to identify which terms have been infringed in order to determine the remedy against the same. A condition is defined as a significant contractual term which is essential to the central purpose of the contract, the breach of which may entitles the aggrieved party the right to repudiate the contract and claim for damages as stated in Poussard v Spiers [1876]. Warranties are contractual terms, which are collateral to the main purpose of the contract, the breach of which may entitle the party to claim damages, but it does not entitle the aggrieved party to repudiate the contract as held in Bettini v Gye [1876]. A warranty is the assurance provided by one party to another regarding the quality of services and goods[6]. Moreover, a condition is directly related to an essential part of a contract whereas a warranty is not directly related to the essential part of a contract.

 

In the given scenario, Mikaela called Ricky of Tower flour and inquired whether gluten-free almond flour was available with them as most of the clients of her cake shop requests for gluten-free cakes. Rick affirms her that it is available in Tower flour. Mikaela often buys ingredients from Tower flour for her cake shop. Therefore, she ordered 40 kilograms of almond flour and after a short conversation; Ricky sent her an online order after mentioning the type and the amount of almond flour in the form. Mikaela filled out the rest of the form and submitted it. However, there was nothing mentioned about the gluten-free almond flour in the form.

Here, Mikaela had mentioned Ricky that most of her clients are ordering for gluten-free cakes therefore, she inquired whether Ricky has gluten-free almond flour and Ricky confirmed of its availability. When Mikaela ordered 40 kilograms of almond flour, it was implied by fact that she ordered gluten-free almond flour. The conditions that make a term implied by contract are reasonability, obviousness and the terms must be clearly expressed and must not be contrary to the express terms of the contract. In the case, after having a conversation about the availability of gluten free almond flour, Mikaela ordered for the same which is so obvious that it goes without saying that she ordered for Gluten-free almond flour. It was reasonable and the term was capable of being clearly expressed.

Further, Dan and Jacob ordered Mikaela to bake their wedding cake using the almond flour but they did not specify that they wanted a gluten-free almond flavored cake. Mikaela uses the almond flour purchased from Rick and Dan suffering from coelic disease had a severe reaction to the cake, as the almond flour was not gluten-free. However, Dan and Jacob did not specifically mention about gluten-free almond flour for the wedding cake. It does not amount to an implied term, as a term would be implied by fact if in the absence of the term the contract would be ineffective. As stated in  Shirlaw v Southern Foundaries it was held that a term is an implied term if it is so obvious that it goes without saying, then such term is not required to be expressly mentioned neither it was reasonable nor the term was capable of being clearly expressed.

In the subsequent scenario, Mikaela put up a sign, which says ‘We accept no responsibility for breach of any warranty’ in her cake shop in a conspicuous place where customers are served. Kimoko ordered a cake, discussed all the details regarding size of the cake, and mentioned that the icing on the cake must be in blue and purple. At the time of delivery, she finds out that the cake has green and blue icing, thus making it inappropriate for the function for which it was ordered.

Now, as mentioned earlier that the terms of a contract is further classified as conditions and warranties. Condition is considered as a significant term of the contract, which is essential to the main purpose of the contract whereas warranty is the assurance regarding the standard of the quality of the services or goods, and is less significant to the central purpose of the contract[8]. In this scenario, the cake was ordered for celebrating a particular sports team because of which Kimoko ordered Makaela to do the icing with blue and purple color. Therefore, the icing color shall be treated as condition as it forms an essential part of the contract. Mikaela is responsible for the breach of the condition despite the sign put up by her in cake shop as the sign states that the shop is not responsible for breach of warranties and not condition. The icing color being an essential part of the cake is a condition and therefore, Mikaela has committed an infringement of condition of the contract.

In case of a contravention of a condition, the aggrieved party to the contract shall have a right to rebut the contract and claim compensation for the damages sustained due to the breach of the condition as stated in Poussard v Spiers case. In this case, Makaela shall be held legally responsible for contravening the condition of a contract and Kimoko shall be entitled to repudiate the contract and claim compensation for any damage sustained by her for such infringement.

Conclusion

Therefore, the fact that almond flour should be gluten-free shall be treated as an implied term by fact in respect of the contract entered between Mikaela and Flour Tower. However, regarding the contract entered into by Dan and Jacob with Mikaela, the fact that their wedding cake must be gluten-free does not form an implied term.

Similarly, in the subsequent scenario, the icing color of the cake was a condition of the contract and Mikaela shall still be responsible for icing the cake with wrong color.

 

Reference list

BP Refinery (WesternPort) Pty Ltd v Hastings Shire Council [1977] HCA 40.

Shirlaw v Southern Foundaries [1926] ltd [1939] 2 KB 206

Poussard v Spiers [1876] 1 QBD 410

Bettini v Gye [1876] QBD 183.

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

Bishop, Jonathan. "My Click is My Bond: The Role of Contracts, Social Proof." Gamification for Human Factors Integration: Social, Education, and Psychological Issues: Social, Education, and Psychological Issues (2014): 1.

Poole, Jill. Textbook on contract law. Oxford University Press, 2016.

Ayres, Ian, and Alan Schwartz. "The no-reading problem in consumer contract law." Stan. L. Rev. 66 (2014): 545.

K?szegi, Botond. "Behavioral contract theory." Journal of Economic Literature 52.4 (2014): 1075-1118.

Bakos, Yannis, Florencia Marotta-Wurgler, and David R. Trossen. "Does anyone read the fine print? Consumer attention to standard-form contracts." The Journal of Legal Studies 43.1 (2014): 1-35.

Butler, Desmond, et al. "Contract Law Case Book." (2013).

Swain, Warren. "Contract Codification in Australia: Is It Necessary, Desirable and Possible." Sydney L. Rev. 36 (2014): 131.

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