Essentials Of A Valid Contract And Exclusion Clause Analysis

Essentials of a Valid Contract

It is to be stated that for a contract to be valid and legally binding upon the parties, it must contain the basic essentials of a valid contract. In this case the essentials of a valid contract will be discussed to analyze whether a valid contract had been formed between Avinash and the café.

There are four important essentials that need to be present for the formation of a valid contract as held in the case Pharmaceutical Society of Great Britain v Boots. There has to be an offer. The offer must be accepted on the terms of the offer. The parties to the contract must intend to create legal obligation by entering into the contract. There has to be a consideration present in the contract.

It can be said that an offer is the statement of expression which intends to create contractual relationship and bind the parties by such relationship. The person making the offer is called the offerer and the person to whom the offer is made is called the offeree. It is to be mentioned that for an offer to be effective, it has to be complete. An offer, as made by the offeror cannot have indefinite and ambiguous terms. It was held in the case AGC (Advances) Ltd v McWhirter that if any of the terms of the offer is missing or incomplete the offer would merely be treated as an invitation to treat.  An important case which discussed the provision of invitation to treat is the case Great Britain V Boots Cash Chemists ( Southern) Ltd (1953) 1 QB 401

It is to be mentioned that for a contract is considered to be an agreement which legally binds the parties. It was held in the remarkable case Carlill v Carbolic Smoke Ball Company that the intention of the parties to create legal relations would be evaluated from the perspective of a reasonable man acting in a similar situation as the plaintiff. It can be said that the court assumes the parties to a commercial contract intend to create legal relations as held in the case Esso Petroleum v Commissioners of Customs & Excise . An objectives test is to be applied to judge whether there was intention of the parties to create legal relations as held in the case Carlill v Carbolic Smoke Ball Company [1893]. However, the burden is on the party to provide contrary evidence, who wishes to establish that such party did not intend to form legal relations. Rebuttal is only successful rarely as was held in the case Rose & Frank Co v Crompton & Bros Ltd.

Offer

The principles of valid acceptance have been illustrated in the case R v Clarke, in which it was held that the acceptance must be in reliance of the terms of the offer. Acceptance is the second step after the offer is made to the offeree. Acceptance of an offer can only be done by the the person to whom the offer was made and on the exact terms of the offer. Any proposition to change the terms of offer by the offeree would constitute counter offer and not acceptance. The news of acceptance of the offer must be communicated by offeror to constitute valid acceptance as held in the case Powell v Lee (1908) 99LT 284 and Felthouse v Bindley. 

Consideration in a contract is also an essential element. The Australian Common Law considers Consideration to be a necessary element of contract. It is to be mentioned that consideration is required to legally bind the parties. The Price which is stipulated by the promisor in return for the fulfillment of the promise is accepted to be the consideration. The aforementioned provision was held in the case Carlill v Carbolic Smoke Ball case. Another important case dealing with the different types of Consideration is Chappell & Co Ltd v Nestle Co Ltd. It was held in that case that the promisor is required to stipulate the consideration amount.

It can be said that in this given scenario the act of letting the customers choose the food or beverage they want to consume from the virtual menu is merely an invitation to treat and not an offer. This provision was discussed in the AGC (Advances) Ltd v McWhirter case. The act of displaying the menu from which the orders are to be placed to all the potential customers is an invitation to treat. When Avinash placed the order from the menu the offer was made by him.

The café’s acceptance of Avinash’s offer constituted valid acceptance. In this case it can be noted that Café accepted the offer of Avinash on the terms proposed by him. The news of acceptance of Avinash’s order by the café was successfully communicated to him by the issuance of the printed ticket, which in this scenario is the proof of acceptance.

An objective is applied by the courts to determine whether the parties had actually intended to create legal relations as held in the case Air Great Lakes Pty Ltd. Any person reasonable in nature would have acted in the same way as Avinash did and would have intended to create legal relationship. The communication of acceptance by the printed ticket ensured that the Café also intended to create legal relations.

Acceptance

Consideration is necessary for a contract to be legally binding upon the parties as held in the Carbolic Smoke ball case. In the scenario consideration can be held to be the price paid by Avinash for consuming the food and beverage provided by the café.

Conclusion         

In conclusion it can be said that a valid contract was formed between the aforementioned parties and all the necessary elements of contracts were present.

It can be stated that the Australian Consumer Law governs the provisions for of consumer rights when buying any goods or services. It is to be discussed in this chosen case study whether Avinash is eligible in claiming damages from the cafe in relation to the provisions stated in Australian Competition and Consumer Act 2010 (Cth) and whether the café can rely on the exclusion clause. 

The legal issue which is to be analyzed in this chosen case is the exclusion clause in a contract. It is to be noted that exclusion is an express term in a contract which targets to restrict or limit the liability of the party to a contract for non-fulfillment of the contract terms. The notable case which deals with the general rule of exclusion clause is the L’Estrange v Graucob case. It is to be mentioned that in the case Darlington Futures Ltd v Delco Australia Pty Ltd  the court held that exclusion clauses in contract are required to analyzed in the same way as any other contract term. There are two tests to analyze the exclusion clause I case of unsigned documents. The first test assesses whether it is reasonably expected for the document to contain contractual terms or does the document have an ulterior objective in the transaction as held in the case Chapelton v Barry urban District Council [1940] 1 KB 532.

The second test assesses whether reasonable steps had been taken to intimate the customer about the existence of an exclusion clause, the notice of the exclusion clause was given to the parties at the time of contract formation and if it is possible to impose terms unilaterally on the customers after the contract formation. In the notable case Thornton v Shoe Lane Parking Ltd.  it was held that a mere representation of the exclusion clause at the back of the ticket will not limit or restrict the liability of a party. An exclusion cause must be brought to the notice of the other party prior or at the time of the contract formation as held in the case Olley v Marlborough Court.

Intention to Create Legal Obligation

However, for successful implementation of the exclusion clause it has to be incorporated along with the other terms of the contract. Such exclusion clause must be brought to the attention of the contracting parties prior to entering into the contract. Exclusion clause is ideally expected to be effective in limiting the liability of either of the parties if it was present when the contract was signed by the parties. In case of contract which is signed by the parties the exclusion clause needs to exist in the documents containing the terms of the contract.

According to section 18 of schedule 2 of the Australian Consumer Law a person in trade or commercial practice is prohibited from engaging in deceptive and misleading conduct. Sections 51-59 of the aforementioned act deal with consumer guarantees in relation to supply of goods.  Section 54 specifically states that the goods or commodities purchased must be of acceptable quality.

It is to be noted that sections 60-64 of the aforementioned act deal with the consumer guarantees related to supply of services.  

According to section 260 of the Australian Consumer Law a supplier or manufacturer will have legal obligations if there is major failure to comply with consumer guarantees. A major failure of goods can be defined as goods; which would not have been acquired by the consumer had he been aware of the nature and extent of its failure, goods which differ from the description or the demonstration model, goods which are unfit for the disclosed purpose, goods that are unfit for consumption and of unacceptable quality.

Section 64A of the Competition and Consumer Act 2010(Cth) states that any change in the terms of the contract is permissible in certain exceptional circumstances provided, such change in the contract terms aim to provide remedy to the suppliers against the claims of consumers due to the exclusion clause. However according to Section 64 of the Australian Competition and Consumer Act 2010 (Cth), it can be said that remedies and warranties of consumers cannot be taken away under any circumstance. Any attempt to do so would be voidable.    

A contract between the café and Avinash had been established between the aforementioned parties in this scenario. The contract had formed when Avinash had placed the order from the ordering menu and the café accepted such order on the terms of the offer. The ticket issued to Avinash is the proof of successful acceptance. Now the question arising is whether the exclusion clause was present at the time of contract formation. At the time of placing the order he had not been intimated about any exclusion clause. He had no idea about any term in the contract which could restrict the liability of the café.

Consideration

Thus it can be said that according to the findings of the case Thornton v Shoe Lane Parking Ltd the exclusion will not be effective it is merely represented at the back of a ticket. Such clause will not limit the liability of the party. For an exclusion clause to be effective in case of unsigned documents, it has to be one which would be assumed to be contained in the document by a reasonable person Parker v SE Railway Co. Further, sufficient notice of the exclusion clause has to be given to the other party which is reasonable Thompson v LMS Railway. Therefore in this case exclusion printed at the back of the ticket would be considered to invalid as it was not possible for a reasonable person to assume it, neither was any notice of such clause given to Avinash prior or at the time of contract formation. If the exclusion clause had been communicated to the parties prior to contract formation, the same would be treated as primary contract terms as held in the case Darlington Futures Ltd v Delco Australia Pty Ltd. Further it is to be stated that beverages and foods sold by the café are for personal consumption, so any attempt to limit its liability will not be permissible by the law as discussed in section 64A of the Australian Consumer and Competition Act 2010(Cth).

Conclusion

In conclusion it can be said that the café cannot avoid its liability for not taking due care which affected the Avinash, the party to the contract. It cannot rely on the exclusion clause printed at the back of the ticket to limit or restrict its liability. Avinash is therefore justified in making the claim.

The rights and obligations of the parties in a contract are governed by the terms of the contract. It is to be mentioned that in every valid contract there are set of terms which are either implied and express and the same are binding upon the parties.

Implied terms are the conditions in a contract which are not clearly express neither agreed upon by the parties. Implied terms are the terms which are incorporated in the contract terms by the statutory provisions and the court. It is to be mentioned that an implied term is incorporated or added in the terms of the contract if it is believed by the court that it is impossible to carry out the other terms of the contract without implementation of such implied term. The same was held in the remarkable The Moorcock case.

Exclusion Clause Analysis

A reasonable person is expected to assess the term of the contract in order to evaluate whether there were any implied term in the contract. It was stated in the remarkable case Shirlaw v Southern Foundries by the court that implied terms cannot be incorporated in the contract terms because it is assumed to be fair. Terms of a contract which are considered to be necessary to give effect to the intention of the parties are generally perceived as implied terms by the common law. In the notable case Codelfa Construction Pty Ltd v State Rail Authority of NSW it was held that common law may imply terms which are based on the presumed or real intention of the parties and those which are required to be implied to provide efficiency in the performance of the contract. In the aforementioned case the conditions necessary to imply terms were discussed. It was held that such terms must be equitable and reasonable, obvious to the extent that it goes without saying, clearly expressed and necessary to provide efficacy to the contract. Such terms must not contradict any of the express terms of the contract

Expressed terms in contract are those terms which are clearly stated in the contract and agreed upon by the parties. Express terms can be written as well as oral. It is to be mentioned that the express terms of contract are known to the parties prior to entering into such contract. The case Wilson v Best Travel deals with the provisions of the express terms of a contract

It can be said that the terms of a contract have different degrees of importance. The consequences for breaching them also vary according to the type of term and the importance attached to such term.

A condition is a major contract term in a contract. It is to be stated that such contract term is central to the meaning of the transaction. In case of breach of a condition of a contract the innocent part can choose to repudiate the contract or sue damages from breach of such condition. The case Poussard v Spiers & Pond discusses where a contract term can be treated as a condition.

A warranty in is minor contract term which is less important than a condition. In case of breach of such contract term the innocent party cannot repudiate the contract, however, such innocent party may choose to claim damages and sue the party responsible for such breach. In the case Bettini v Gye, it was discussed where a contract term may be treated as a warranty.

Two Tests to Analyze Exclusion Clause

In case of an exclusion clause existing along with the terms of the contract, such clause will aim to limit the liability of one of the parties to the contract. Exclusion clause can exist in a written contract. However, such clause can be incorporated in unsigned documents. Such exclusion clause can be incorporated in dockets, tickets, signs, vouchers, signs and receipts.  

The main difference between express terms and implied terms is that implied terms are those terms which are not written in case of written contracts neither spoken in oral contracts but are still binding upon the parties. They are either incorporated from past dealings as held in the case Balmain New Ferry Co Ltd v Robertson, or from industry practice as held in the case British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd and to improve business efficacy as held in the case ‘The Moorcock’.

The implied terms can even be governed by Australian Consumer Law and are therefore known as statutory implied terms.      

It can be said that in question one both express and implied term were existent. The express term included serving the food and beverage for the price paid for it. Such term can be considered to be a condition. However, the food and beverage served by the café required to be of acceptable quality as stated by section 54 of the Australian consumer law. Such term although not clearly express but incorporated by the Australian consumer law as an implied term.

Conclusion

Thus, in conclusion it can be stated implied as well as express terms can exist in a contract. Express terms are those which are clearly specified where and agreed upon by the parties at the time of entering into the contract. However, implied terms of a contract are those which assessed by the courts and statutes and those which are although not clearly express and are essential for carrying out the other express terms. Thus analyzing both express as well as implied terms, the terms of the contract in question one can be regarded to be as clearly express.

Case laws:

AGC (Advances) Ltd v McWhirter(1977) 1 BLR 9454

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309

Carlill v Carbolic Smoke Ball[1893] 1 QB 256

Chappell & Co Ltd v Nestle Co Ltd[1960] AC 87

Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500

Ellul and Ellul v Oakes (1972) 3 SASR 377

Hyde v Wrench[1840] EWHC Ch J90

L’Estrange v Graucob [1934] 2 KB 394

Shepperd v The Council of the Municipality of Ryde (1952) 85 CLR 1

Shirlaw v Southern Foundries [1939] 2 KB 206

Thornton v Shoe Lane Parking Ltd. (1971) 1 All ER 686

Wilson v Best Travel [1993] 1 All ER 353

Lillico & Sons Ltd [1969] 2 AC 31

Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401

British Crane Hire Corp Ltd v Ipswich Plant Hire Ltd  [1973] EWCA Civ 6 

Balmain New Ferry Co Ltd v Robertson  (1906) 4 CLR 379

Bettini v Gye (1876) 1 QBD 183 

Poussard v Spiers & Pond (1876) 1 QBD 410

‘The Moorcock’[18816- 1890] AA ER 530

Thompson v LMS Railway  [1930] 1 KB 41

Parker v SE Railway Co (1877) 2 CPD 416

Chapelton v Barry urban District Council [1940] 1 KB 532

Powell v Lee (1908) 99LT 284

Felthouse v Bindley (1862) EWHC CP J 35

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