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Question

Peter requests your legal advice as to whether Craig has to proceed with the contract (that is, buy the car) in these circumstances? The entire matter has taken place in Canberra.

 

Answer:

Introduction:

The issue is to check that whether Craig is liable for the purchase of a car as decided between him and Peter.

For a valid contract, some elements are prescribed under contract law that must be there in every valid contract.  Offer is a basic factor of every contract, which needs to be accepted by the offeree. Before doing discussion on elements of a contract, another term of Contract Law is also necessary to discuss which is known as invitation to treat. This term often get misled with an offer. The issue is to check that whether Craig is liable for the purchase of a car as decided between him and Peter.

An invitation to treat is only an invites for the offers. In reply to an invitation to treat, the other person requires to make an offer. This is to understand that there is a huge difference between an invitation to treat and an offer. An offer can be accepted by offeree but not an invitation to treat. It was held in the case of Partridge v Crittenden (1968) 2 All ER 421
that an advertisement is considered as an invitation to treat. However, some exceptional circumstances are there in which an advertisement can be considered as an offer. In this context, the decision of the case of Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 is important to study. According to the decision given in this case, if an advertisement is of nature that only requires an action of another party to become a contract then in such situations, the advertisement will be termed as an offer and not the invitation to treat.

 

Elements of a contract

Offer: - In addition to a contract, the offer is also a mandatory term for an agreement. This is a willingness to enter into a contract that one party of the contract, shows to other. Until unless there is an offer, there will be no question of other elements of a contract. An offer can be written or oral (Find Law, 2018). As earlier stated, an offer must not be misunderstood with an invitation to treat. The communication of offer is also a requirement. An offer in a contract seems to be complete when the same communicates and informs properly to the offeree.

Acceptance: - As the name implies, acceptance is a consent to the offer made by the offeror. That person to whom it has made i.e. the offeree can accept an offer. Similar to an offer, an acceptance is also required to be communicated. It is the responsibility of offeree to inform the offeror about his/her acceptance. Acceptance can also be verbal or written. In some of the transactions, an act of offeree can be treated as acceptance. Such acceptance is known as acceptance by conduct (US Legal, 2018). For instance, if in the offer it is stated that offeree is required to deposit in consideration then as much amount then as soon as offeree will deposit the amount to the required account, acceptance will get complete. For the acceptance, it has been held in the case of Felthouse v Bindley [1862] EWHC CP J35 that silence cannot be treated as acceptance. The certainty of acceptance is also important. It was decided in the case of Scammell and Nephew v Ouston [1941] AC 251 that an acceptance must be certain and clear objectives of both the parties must reflect in the transactions. It means both the parties must not remain in any doubt.

Consideration: - Apart from the offer, an acceptance, consideration is also an important factor of a contract. If a contract, consideration must be there for both of the parties. It can be anything. However, but it should be something that has some values in the eye of law. It was given in the decision of the case of Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1  that consideration of a contract must be sufficient and the same is need not to be adequate. It means a contract cannot be held invalid only on the basis of the fact that consideration was not adequate. Further, the consideration of a contract must not be illegal. For instance, any illegal promise, or promise to do something illegal cannot be treated as valid consideration. In the case of Tweddle v Atkinson [1861] EWHC QB J57 it has given that consideration in a contract must move from the promise.

The intention of the parties: - Both the parties to the contract must have the intention to create a legal relationship with each other. If two people agree to do certain things but do not have the intention to bind each other in a legal manner, then a contract cannot be assumed to be there. Court of appeal decided in the case of Jones v Padavatton [1969] 1 WLR 328 that intention to create legal relationship must also be there even in those cases where parties of an agreement have domestic relation with each other (E-Law Resources, 2018).

If all the aforesaid four elements exist in a transaction, then the transaction converts into a contract. As soon as a contract develops between the parties, parties get power to sue each other and to bind each other for the performance of the contract.

Contract with Minors

Every agreement that is developed with the minor will be considered as voidable at the part of the minor. In Australia, a minor is a person who has not attained the age of 18 years yet (Legal Commission of South Australia, 2018). It means if a person enters into a contract with such minor person, then he/she will have no right to as for the performance of the contract. However, there are some exceptions to this rule. A Minor can enter into a following kind of contracts:-

  • Contract for necessity
  • Contract of employment (Australian Contract Law, 2018).

Apart from these two contracts, a minor has no capacity to be the part of a contract. Nevertheless, a minor can ratify the contract entered by him after attaining the age of 18. If a Minor do so then he/she will be liable in a contract as a mature person (Fletcher Law, 2018).

Moving towards other exception of the general rule that states “Contract with the Minors are not enforceable”, this is to state that parents of a minor can give consent in a contract. If parents of a minor person in a contract, ratify the same then the third party can sue a minor for the performance of a contract. However, in general, one should be careful while entering into any contract with Minor (Dundas Lawyers, 2016).

Apart from the right and benefits of minor in a contract, this is to state that if a minor take some benefits out of a contract then the refund he is entitled to take will reduce by the amount of such benefit (Latimer, 2011)

 


Misrepresentation: - This is a situation where either party of a contract makes a false representation about a term of a contract to the other party. Such representation can be in form of a statement. When a party makes some false statement about a subject matter of a contract or anything else, then such a statement is treated as a misstatement. A misrepresentation is a wider term that includes misstatements. Under Contract Law, there types of misrepresentations are defined. That are as follow:-

  • Fraudulent Misrepresentation:- A fraudulent misrepresentation is a situation where a person make some representation that he/she knows is incorrect. The mala fide intention exists in such kind of representations (Cross and Miller, 2008).
  • Negligent Misrepresentation: - As the name implies, where a party to case make a false representation and the same has no reasonable ground to consider the same true, then such representation is known as negligent misrepresentation.
  • Wholly Innocent Misrepresentation: - Where a party thinks that a fact is correct which is not in actual and the person informs to another party with this fact, then such a situation is named as wholly innocent Misrepresentation (Legal Match, 2018).

The kind of misrepresentation is important to decide because based on the same remedies are voidable under contract law. It was held in the case of Doyle v Olby [1969] 2 QB 158 that in a situation where fraudulent misrepresentation exists, the innocent party can rescind the contract.

Whereas on another side, in cases of negligent misrepresentation, the contract will be treated as the fraudulent misrepresentation was there and the innocent party can set aside the contract. In the case of innocent misrepresentation, an innocent party can rescind the contract or can ask for the damages but cannot ask both of them.

Importance of validity of a contract: - As earlier stated, a contract must be valid in order to make the parties liable. If not all the elements are there in a contract, parties cannot initiate any action in against of each other (Lewis and Owen, 2014). Further, if a minor is a party of a contract, then the third party can have no right in against of such minor and minor can held the contract voidable. It means, minor can enforce the contract but not the other person. Further, if any misstatement is there, then parties to the contract can rescind the same and another party cannot force to innocent party for the performance of the contract.

 

Application

In the given case, the person named Peter has published the online advertisement to sell his car. In the advertisement, the car was represented as a 2017 model Aston Martin V8 Vantage and the sale value of the same was stated as $240000. It was an invitation to treat and not an offer. Applying the provisions of Partridge v Crittenden, being an advertisement, it was required to be considered as an invitation to treat. Therefore, in reply to this invitation, another party of the case Craig (17 years old person), shown his willingness to buy the car. He made an offer to Peter stating that I will buy this. It was not an acceptance of the case as acceptance can be given to offer but not to an invitation to treat. Assuming that Craig has asked the bank details of Peter. When Peter has provided the same to Craig, such an act would be considered as acceptance of the case. It means Craig has made an offer to Peter to buy the car as stated in the invitation to treat and by providing his bank details, Peter has accepted the offer of Craig.

The two basic elements of a contract i.e. offer and acceptance have completed in the case. Now, moving towards the third element i.e. consideration, this is to be stated that the same was also there. Peter was ready to sell his car for $200000. It was a legal consideration and was sufficient. The last element of a contract, which was required to be there, was the intention of the parties to build legal relationships. Peter and Craig both had the intention to bind each other, as it was a pure economic transaction. Craig has deposited the part of the consideration to Peter’s account.

Later on, in the case, it has been noted that the vehicle, Peter was intended to sell was not as represented. In the invitation to treat, it was stated that the vehicle is a 2017 model Aston Martin V8 Vantage, however, when Craig inspected the vehicle it was found a 2007 model. It was a misrepresentation from the side of Peter. When Craig has discussed the issue with Peter, it has come to know that Peter was also not aware of the fact that advertisement consisted such misstatement. Peter had full knowledge that the car is a 2007 model but a wrong intention was not there. However, Peter has also no ground to believe that the car is a 2017 model. It was a negligent misrepresentation. Craig found that the 2007 model was worth of half amount of a 2017 model of the same car. Peter has demanded the performance of the contract from Craig. He stated that he had no idea that advertisement consists of a misstatement and now Craig needs to pay rest of the amount of consideration.

 


Now, this is to state that Craig was a minor person. According to the provisions of Contract Law, he could not be a party to the contract. He was about to be Major as his 18th Birthday was on the way. However, at the time of entering into a contract with Peter, he was a minor. The contract made between Peter and Craig cannot be covered in any exceptional circumstances of the general rule. Therefore, this contract was not a valid one but was voidable at the end of Craig. If Craig wants then he can force Peter to sell his car. Nevertheless, Craig does not want this as Peter has made a negligent misstatement and the car was not of the quality as Craig wanted to buy. Craig cannot cancel the contract based on the fact that consideration was too high, as, under the Contract Law, consideration can be anything that has a certain value in the viewpoint of Law. $200000 was a valid consideration. According to the provisions of Chappell & Co Ltd v Nestle Co Ltd, the contract cannot be held void based on the amount of consideration.

Later on, in the case, Craig did some acts, which he was not required to do  in order to take the advanced money back. He broke the car thinking that he would get the advanced money deposited by him out of the amount of insurance claim, that Peter will receive from insurance company. As a negligent misstatement was there, it was a voidable contract, which Craig could set aside. In addition to this, he was also a minor and hence could not be held responsible for the performance of the contact. If Craig would not have done such an act, he could set aside the contract and in addition to this, he could also asked for the refund of advanced money deposited by him into the bank account of Peter. Now, Craig has damaged the car of Peter. In such a situation he has two options, either to accept the contract or to held the same voidable.

Conclusion

The contract made between Peter and Craig was not a valid one. As nothing is mentioned about ratification of the contract, this is to assume that Craig has not ratified the contract. Craig has two reasons to rescind the contract. One is his minority and another one the existence of negligent misstatement. Further, in the case, Craig has made a loss to the car of Peter. In such a situation he still can held the contract rescind and claim the advanced money deposited by him, but the amount of refund will be reduced by the amount of such loss. Peter in any situation cannot force Craig to purchase the car.

 

References

Australian Contract Law. (2018) Capacity to contract. [online] Available from: https://www.australiancontractlaw.com/law/formation-capacity.html [Accessed on 25/09/2018]

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

Chappell & Co Ltd v Nestle Co Ltd [1959] UKHL 1 

Cross, F., and Miller, R. (2008) The Legal Environment of Business: Text and Cases -- Ethical, Regulatory, Global, and E-Commerce Issues. Mason, OH: South-Western Cengage Learning.

Doyle v Olby [1969] 2 QB 158 

Dundas Lawyers. (2016) Contracting with Minors – is it even possible? [online] Available from: https://www.dundaslawyers.com.au/contracting-with-minors-is-it-even-possible/#_ftn1 [Accessed on 25/09/2018]

E-Law Resources. (2018) Jones v Padavatton [1969] 1 WLR 328 Court of Appeal.  [online] Available from: https://e-lawresources.co.uk/Jones-v-Padavatton.php [Accessed on 25/09/2018]

Felthouse v Bindley [1862] EWHC CP J35

Find Law. (2018) What Contracts are Required to Be in Writing? [online] Available from: https://smallbusiness.findlaw.com/business-contracts-forms/what-contracts-are-required-to-be-in-writing.html [Accessed on 25/09/2018]

Fletcher Law. (2018) Risks of contracting with minors in the online world.  [online] Available from: https://fletcherlaw.com.au/2017/01/risks-contracting-minors-online-world/ [Accessed on 25/09/2018]

Jones v Padavatton [1969] 1 WLR 328

Latimer, P. (2011) Australian Business Law 2012. Australia: CCH Australia Limited.

Legal Commission of South Australia. (2018) People under 18.  [online] Available from: https://www.lawhandbook.sa.gov.au/ch10s02s03s01.php [Accessed on 25/09/2018]

Legal Match. (2018) Innocent Misrepresentation Laws. [online] Available from: https://www.legalmatch.com/law-library/article/innocent-misrepresentation.html  [Accessed on 25/09/2018]

Lewis, J., R., and Owen, S. (2014) Law for the Construction Industry. Oxon: Routledge.

Partridge v Crittenden (1968) 2 All ER 421

Scammell and Nephew v Ouston [1941] AC 251 

Tweddle v Atkinson [1861] EWHC QB J57

US Legal. (2018) Acceptance. [online] Available from: https://contracts.uslegal.com/elements-of-a-contract/acceptance/ [Accessed on 25/09/2018]

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