Validity Of Contract And Consumer Rights Under Australian Law Essay.

Question 1

Please advise Vincenzo  Franco if he entered in a contract with Scenic Views and if this contract can be invalidated  under the principles of Contract Law.

(a) Explain how the ELEMENTS to be satisfied in order to make a simple contract  valid

• You will need to address all the essential elements of a contract including (Offer and acceptance, intention and consideration) as well as elements of a valid contract(Capacity, Legality, Genuine Consent – Mistake, Misrepresentation, Durres, Undue Influence and Unconscionability.
• You  will need to address  and explain the methods by which a contract is ended.
• You will need to address and explain Remedies available for Vincenzo Franco

(b) Explain the construction of the contract .

• For the purposes of this part you should distinguish between representations and terms.
• Explain the importance of a collateral contract
• Distinguish between conditions and warranties

Note: You must address these questions according to the case scenario provided and do not forget to provide relevant cases studies to support your legal argument

Question 2

Explain to Vincenzo what are his Australian Consumer Law Guarantees under the Competition and Consumer Act 2010 (Cth) .

• You need to justify your view as to whether these guarantees are available. You will also need to explain the meaning and significance of the implied consumer guarantees.
• Explain the consumer’s rights in the event of the supplier’s failure to comply with a consumer guarantee.
• In addition,  Explain the remedies available to Vincenzo Franco and the penalties that can be imposed  to Scenic Views under the Act against  a trader in breach of the Australian Consumer Law.

Elements required for a valid contract

Whether the contract formed between Vincenzo Franco and Scenic view can be invalidated with respect to the rules of contract law.

There are three essential elements which are required to form a contract. These are offer and acceptance, consideration and intention. On the other hand a valid contract can be identified based on factors such as legality, capacity, genuine consent – duress, mistake, misrepresentation, unconscionability and undue influence.

According to the case of Smith v Hughes an offer is a statement made by a person to another. The statement or expression has legal intention to signify the other that if the offer is accepted, it will be bound legally.

As per the case of Entorres v Miles Far East an acceptance is the consent provided by the party to whom the offer is made. The consent signifies that the party is willing to be bound by the terms of the offer.

Intention is an element which is deemed to be present in commercial agreements according to the case of Merritt v Merritt

Consideration has been defined by the case of Thomas v Thomas as anything of value. A consideration has to be present for a formation of the contract even if it is not sufficient.

A person must have capacity to enter the contract. This means they must not be prohibited by the law to do so, they must not be minor and they must have a sound mind when the contract is formed.  In addition the subject matter of a contract has to be legal so that it can be enforced.

The consent provided by the party in terms of acceptance has to be free and genuine consent. They should not have any form of duress, mistake, misrepresentation, unconscionability and undue influence.

There are various methods through which a contract can come to an end. These methods include frustration, performance, discharge, breach and mutual consent of the parties as per Cutter v Powell.

Where the contract has been breached damages can be claimed by the party whose contractual rights have been violated. As per the case of Addis v Gramophone damages are provided to reinitiate the position of the party of the contract was not breached. Other forms of remedies include recession, specific performance and injunction.

In the present situation, the essentials elements of a contract required for formation have been satisfied. An offer had been made by the manager of the Scenic view to Franco which was worth $350 per night for the hotel room wanted by him. The offer had been accepted by Franco even if it was a little bit expensive as it was all inclusive. As this is a commercial agreement there was intention present according to Merritt v Merritt. In addition the consideration here was the $350 per night and the services provided by the company.

Rules associated with contract construction

Here, Franco or the company is not minor, not prohibited by law and have a sound mind and thus the element of capacity is also satisfied. Franco and the company are not indulging in a contract which is illegal so the element of legality is also satisfied.

However, it has been provided that Franco is week in English and this fact was understood or known by the manager of the company. He was unsure that the things which have been stated by him to Franco had been understood properly or not. Thus this can lead to an unconscionable conduct on the part of the manager which makes the contract voidable on the part of Franco.

In addition it has been provided that when Franco reached the hotel he did not find balconies and panoramic view which had been promised to him by the manager. In the give case he can either claim misrepresentation or a breach of contract. He can claim misrepresentation of the balcony and panoramic view was not a term of the contract. However in this case they are the terms of the contract due to the expertise of the parties, time passed between negotiation and importance of the term signified by Franco to the manager. Thus he can end the contract by breach.

In addition, he can claim damages for the breach of contract under the principles of the Addis v Gramophone case as other form of remedies are not applicable. He can rescind the contract and claim full refund because of breach.

Conclusion

The contract formed between Vincenzo Franco and Scenic view can be invalidated with respect to the rules of contract law

• The issue is to determine the distinction between a representation and a term of contract
• The issue is to find out the significance of a collateral contract
• The issue is to differentiate between conditions and warranties

The statements made by the parties to a contract are to be considered as a representation or a term depends on a few tests. These include, the parole evidence rule, the expertise of the parties, time passed after negotiation and significance of the term.

In the case of Ecay v Godfrey, the court ruled that when a person has let the other know that a statement is very important for them, then such statement will be a term and not representation.

When the party who makes the statement has more knowledge about the statement, then the statement would be a terms as per Dick Bentley v Harold Smith Motors.

The time passed after negotiation if more than the statement will be a representation  and if less it will be a term as per Routledge v Mckay.

Australian Consumer Law Guarantees

The parole evidence rule states that when a contract is documented anything which is not recorded in it is a representation.

A collateral contract is a kind of new contract which is formed in relation to the main contract. The party uses the main contract as a consideration for a collateral contract. A person has the right to legally enforce the terms of a collateral contract if it has been formed validly.

Contractual terms can be categorized into two types of terms. These are known as conditions and warranties. The condition is the terms of the contract which is considered as a fundamental or most important part of the contract. The violation of a condition entitles the aggrieved party to claim compensation as well as rescind the contract. These principles had been discussed in the case of Poussard v Spiers. On the other had the terms which are not the basis for which the contract is formed but still are a part of the contract are defined as warranties. A warranty if violated does not entitle the aggrieved party to rescind the contract. They can only claim compensation for the breach as per Bettini v Gye.

In this case the balcony and panoramic view are the terms of the contract due to the expertise of the parties, time passed between negotiation and importance of the term signified by Franco to the manager. The manager had more knowledge than Franco in relation to the situation of the hotel and thus he has more expertise in the situation. The manager also understood through the expression of Franco that the panoramic view and the private balconies are the reasons why he is paying the expensive price. The booking was done as soon as the negotiation between the manager and Franco was over and thus it is a term and not a representation.

In the present situation there is no collateral contract being formed between the parties. With respect to conditions and warranties it can be stated that, the term of private balcony and panoramic view would be a condition of the contract. This can be confirmed because it is one of the most important statement because of which Franco was induced into forming the contract with the company. The contract with the company would not have been formed by Franco if he had to pay such high price for no private balcony and panoramic view. Thus in the present situation as it is a condition and not a warranty Franco can repudiate the contract and also claim damages as he has not been provided with private balcony and panoramic view.

Conclusion

Conclusion

• Thus the can be concluded through the analysis that balcony and panoramic view was a term rather than a representation
• There is no collateral contract in the situation
• The private balcony and panoramic view is a condition and not a warranty

The Australian Consumer Law is a part of the Australian Competition and Consumer Act 2001 (Cth). The law through section 3 defines a consumer as a person who purchases domestic goods and services for household purpose which have a value of $40000 or less. Thus any person who has availed such services and purchased such goods is provided protection with implied consumer guarantees under the law. In the present situation it has been seen that Franco has availed services which are worth less than $40000 and for a domestic and household use. This means that he is a consumer and can avail the implied consumer guarantees under the law. The implied consumers’ guarantees have been included in the ACL to provide protection to the consumers against exploitation by the suppliers in the course of trade and commerce. These guarantees are applicable in case of both goods and services. In relation to goods a consumer can avail consumer guarantees under s 51-59 and in case of services consumer guarantees can be availed under s 60-63.  The implied consumer guarantees signify that even if in a contract for goods and services there is no form of express agreement with respect to the guarantees, they would still be implied by the courts in the contract. In addition it the consumer guarantees cannot be excluded for a contract of goods and services through an exclusion clause in under the provisions of section 64 of the ACL.

In the present situation it can be seen that Franco has availed a contract of services with the company and as he is a consumer he is entitled to receive protection under consumer guarantees. Under s 61 it has been stated that the services which have been provided under the contract have to be fit for a particular purpose. As per the facts was clear to the company that Franco is availing the services because of the panoramic view and Private balcony. As the hotels rooms does not include the same, the services provided by the hotel are not fit for a particular purpose and thus it results in the breach of s 61.  

In addition when, Franco has asked for a refund from the hotel they have pointed out on terms and conditions which do not include full refund. As under the consumer guarantees a person is allowed to claim repair, replacement and refund, such clause would not be valid under the application of section 64.

There are a few specific remedies which can be claimed by Franco in the event of violation of the implied consumer guarantees. A person can take action against supplier of services under s 267 of the Act if the above discussed guarantees have been breached.  Under the provisions of section 268 it has been provided that the breach of guarantee would be a major failure to comply of the services are substantially unfit for the purpose they have been obtained. This in this situation its is substantially unfit to provide a grey wall view instead of a panoramic view and private balcony. Franco can terminate the contract under the provisions of section 269 of the Act.

Addis v Gramophone  [1909] AC 488

Australian Competition and Consumer Act 2001 (Cth)

Bettini v Gye 1876 QBD 183

Cutter v Powell  [1795] EWHC KB J13.

Dick Bentley v Harold Smith Motors [1965] 1 WLR 623

Ecay v Godfrey   [1947] 80 Lloyds Rep 286

Entorres v Miles Far East [1955] 2 QB 327

Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince. Problems in Contract Law: cases and materials. (Wolters Kluwer Law & Business, 2016).

McKendrick, Ewan, and Qiao Liu. Contract Law: Australian Edition. (Macmillan International Higher Education, 2015)

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

Merritt v Merritt  [1970] EWCA Civ 6.

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

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

Poussard v Spiers  (1876) 1 QBD 410

Routledge v Mckay [1954] 1 WLR 615

Smith v Hughes  (1871) LR 6 QB 597

Thomas v Thomas  (1842) 2 QB 851