Validity of Contract and Exclusion Clause

This document discusses the validity of a contract between John and Span and Spic, as well as the validity of an exclusion clause. It explains the essential elements of a contract and the rules for an exclusion clause. It also explores the rights of a consumer under Australian Consumer Law.

Business Law
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Contents
Part A..........................................................................................................................................................2
Issue 2
Rules 2
Application 3
Conclusion 4
Question 2...................................................................................................................................................4
Issue 4
Rules 4
Application 5
Conclusion 5
Question 2...................................................................................................................................................5
Issue 5
Rules 5
Application 6
Conclusion 6

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Part A
Issue
Whether a valid contract was developed between John and Span and Spic. Another issue is to
check that Whether Span and Spic can rely on the exclusion clause that they have mentioned on
the slip or not.
Rules
A contract can be understood as a legally binding agreement where two parties promise to
perform a particular task for each other in return to a specific consideration. The main
characteristic of a contract is that the law can enforce the same. A contract is developed when the
same has all the essential elements. These elements are basic requirements that need to be
present in each contract. In the following section, these elements are discussed:-
 Offer: - An offer is a basic element, which comes first of all elements. It is a proposal to
do or to not do a particular thing in reward of a consideration. The person who makes this
proposal is known as offeror and another person who receives such offer is known as
offerree. An offer must be addressed to a specific person. Many requirements are there in
relations to an offer and an offer that fulfills all of them is treated as a valid one. It was
provided in the case of Harvey v Facey1 that an offer must contain an intention to be
bound. The issue associated with the offer is its similarity with other terms. Invitation to
treat is the one term, which creates huge confusion. It seems to be the same as an offer
but in actual the same is different. It is just a call for offers where one party invite offers
1 Harvey v Facey [1893] UKPC 1, [1893] AC 55

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and thereafter another party is required to make the offer2. Afterward, the party who
makes an invitation to treat comes at the place of the offeree and hence requires to accept
the offer. Now the other issue is related to the identification of offers and an invitation to
treat. As mentioned above, both of the terms seem to be interchangeable but legal
treatments of both are different. In general, advertisements are considered as an invitation
to treat but this is not true for every situation. Pharmaceutical Society of Great Britain v
Boots3 is an important case to study here where it has been decided that the good
displayed in shops or shelf with price tags are just invitation to treat and the customer has
to make an offer to purchase those goods. After that, the trader who displays such goods
needs to decide whether to accept the offer or not.
 Acceptance: - Once an offer is made by the offeror to the offeree, the later party need to
provide free consent to offer. The consent must be for the exact terms that are mentioned
under an offer. An offeree needs to communicate his/her acceptance to the offeror. In the
case of Brogden v. Metropolitan Railway Co.4, the court decided that acceptance can also
be provided via conduct5. It means if the nature of the offer is the one that can be
consented by doing a particular thing then the acceptance will be able to grant through
conduct.
 Consideration: - This is the main motivation behind the development of a contract for
each party. It can be anything but must not be an illegal article or activity. A valid
2 Duhaime.org, Invitation to Treat Definition: (Web Page)
<http://www.duhaime.org/LegalDictionary/I/InvitationtoTreat.aspx>.
3 Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401
4 Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666
5 James Marson, Business Law (OUP Oxford, 2013)

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consideration is the one, which has a legal value. As per the verdict of Chappell v Nestle6,
consideration must be sufficient and there is no rule that the same must be adequate7.
 The intention of parties: - It is also an important element of a contract, in the absence of
which a contract cannot be developed. As per this requirement, parties to the contract
must have an intention to make each other bind in a legal manner. If parties develop an
agreement but do not want to create legal relations then such agreement cannot be
developed into a contract.
The above-mentioned elements must be there in each contract in order to held the same as a
valid contract. A contract seems to be breached when a party fails to perform one or more
term of the contract. Such terms can be expressed as well as implied. A contractual term is a
provision that forms a contract and gives birth to contractual obligations.
Application
In the case presented hereby, a person named John decided to get his coat dry clean from Span
and Spic. When he entered the shop, he saw a notice board on that prices of different packages
were mentioned. Applying the provisions of the Pharmaceutical Society of Great Britain v
Boots, this notice board will be treated as an invitation to treat and not the offer because the same
was not addressed to a specific person. In reply to this invitation, John was required to make an
offer. He then selected a premium option and asked the shop assistant that whether this cleaning
under this package would be suitable for cleaning of the kind of suit he had. Shop assistant
ensured John that the cleaning was suitable and his suit will face no harm. When John decided to
go ahead with the premium plan and presented his interest to the shop assistant, he made an
offer. As per the provisions of invitation to treat, the trader was required to accept the offer made
6 Chappell v Nestle [1960] AC 87
7 Richard Taylor and Damian Taylor, Contract Law Directions (Oxford University Press, 2017) 72.

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by the customer. In reply, of the offer made by John, Shop assistant provided him a receipt.
Providing receipt was an acceptance through conduct in this case. In this manner, the offer made
by offeror got its acceptance. Further consideration was also there which was dry cleaning of suit
for John and money for Span and Spic. The last element of contract i.e. intention to create legal
relationship also seems to be there as the transaction developed between John and Span and Spic
had a purely economic nature. As consideration and intention of the parties were presented under
the offer made by John, a contract is developed between parties as soon as the shop assistant
provides a receipt to John.
Providing a safe dry clean was an express term of the contract as it was clearly decided between
the parties hence Span and Spic failed to do so. In this manner, the same breached the contract.
Conclusion
To conclude the asked issue, this is to state that yes, a contract was developed between John and
Span and Spic and the later party breached the same.
Question 2
Issue
Whether the exclusion clause inserted by Span and Spice is valid under contract law?
Rules
An exclusion clause is one of the important terms of contract law. As the name implies, such
clause limits or avoid liability of a party under the situation of breach of contract or negligence.
Similar to the essential elements of the contract, an exclusion clause also has certain rules, which
have been decided under the decision of various cases. Two types of contracts are there, signed

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and unsigned. Provisions regarding the validity of the exclusion clause are different for each kind
of contract. In general, such contract must be inserted before the development of contract as
decided in the case of Olley v Marlborough Court8. When it comes to unsigned contracts, such
clause is usually mentioned on dockets, receipts or other documents in the lack of a written
contract. Here in such cases, parties need to be more careful. In such cases, the party, which
prepares an exclusion clause, must carry such clause in the notice of another party. The rule of
reasonable notice says that the exclusion clause must introduce in a manner that a reasonable
person can check the same. Further, the document also takes an important place in the unsigned
document and a reasonable person must have a belief that the document may consist of an
exclusion clause.
Misrepresentation is a situation where one party misrepresents something about a fact or law to
another party. Protections to such another party are available where the same enters into the
contract believing on subjective misrepresentation and faces loss. In cases of the exclusion
clause, the misrepresentation must not be there as if the same would be there then the exclusion
clause will be held invalid. In Curtis -v- Chemical Cleaning & Dyeing9 court provided that an
exclusion clause must be free from any kind of misrepresentation. If a party misrepresents the
scope, meaning, and effect of an exclusion clause to innocent party then the court will held such
clause invalid and the liable party will not be able to rely on such clause. Contra Proferentum
Rule says that any ambiguous clause should be interpreted in against of the party who wants to
rely on the same. White v John Warwick & Co Ltd10 is also an important case to study here,
which says that the innocent party can sue the liable party under negligence for the damages
occurred to him/her if exclusion clause excludes liability under negligence.
8 Olley v Marlborough Court [1949] 1 K.B. 532
9 Curtis -v- Chemical Cleaning & Dyeing [1951] 1 KB 805
10 White v John Warwick & Co Ltd [1953] 2 All ER 1021

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Application
In the provided case, the contract was developed between the parties and one of the party namely
Span and Spic inserted exclusion clause into the contract. The contract does not consist of any
written agreement, which was required to be signed. This is a case of the unsigned document and
hence the related provisions will be applicable. The contract became develop at the moment
when the shop assistant provided a receipt to John. Applying the provisions of Olley v
Marlborough Court, the clause was required to be inserted before this moment. Exclusion clause
was mentioned on the back of the receipt and therefore the same will be held invalid. John could
not check the clause before entering into a contract. Although as the receipt was the only
document of the case; the same seems to be a reasonable document.
Further, the element of misrepresentation was also there in this clause. John asked the shop
assistant about the quality of dry clean and he ensured him that no harm will be made to his coat.
John entered into contract relying on this statement hence as per the provisions of Curtis -v-
Chemical Cleaning & Dyeing the clause will have no effect. At last, in the subjective clause,
nothing was mentioned regarding negligence as the same only excluded contractual liability.
John can bring an action under negligence too referring to the decision of White v John
Warwick & Co Ltd.
Conclusion
The discussed Exclusion clause will not be valid for many reasons.

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Question 2
Issue
Can John be treated as a consumer under the provisions of Australian Consumer Law? If yes
then what rights John owe as a consumer.
Rules
Section 3 of Australian Consumer Law provides the definition of consumer. As per this section,
a consumer is a person who avails goods or services for personal uses that have value not more
than $40000. In order to provide protection to consumers under this law, the same provides some
guarantees. Guarantees are there with respect to goods as well as to services. If to discuss the
guarantees available in respect to services are mentioned under section 60-62 of the act. Staring
from the very first guarantee that is stipulated under section 60 of the act this is to state that it
becomes the liability of services providers to keep a good level of skill and care while providing
services to consumers. Further section 61 of the act says that it is a statutory guarantee to provide
services, which are fit for a proper purpose11. It means sometimes consumer informs the service
provider a particular purpose for which he/she want to avail the services. In such a situation,
services providers must ensure that the services provide by him/her are fit for that particular
purpose. At last, Section 62 of the act says that the services must be supplied within the time
decided between the parties or within a reasonable period if no time/period is decided12. Section
267 and 268 of the act provides the remedies that are available to the consumer in case of breach
of statutory guarantee. Section 267 of the act provides that in case of major failure a consumer
11 Australiancontractlaw.com, Australian Consumer Law: Consumer guarantees (Web Page)
<https://www.australiancontractlaw.com/consumerlaw/guarantees.html>.
12 Lawhandbook.sa.gov.au, Implied guarantees for services (Web Page)
<https://lawhandbook.sa.gov.au/ch10s03s02s01.php>.

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may terminate the contract and can reduce the value of payment up to the level of loss13. Further
as per section 268 of the breach of section 61 is counted as a major failure.
Section 18 and 64 of ACL are also an important section, which says that the liabilities regarding
deceptive conduct and statutory guarantees cannot be excluded by the exclusion clause.
Application
In the given case, John availed the services of dry cleaning for personal use. The value of service
is not mentioned but the same is assumed to be of less than $40000. In this manner, John was a
consumer. Further, being the service provider, it was liability of Span and Spic to provide
services according to proper purpose, but the same failed to do so and breached the provisions of
a statutory guarantee under section 61 of the act. In addition to this, the service provider also
failed to keep due care in the provisions of service and breached the statutory guarantee under
section 61 of the act. It was a major failure under section 267 of the act and hence John can set
aside the contract. He can also recover the compensation up to the loss of value of services. As
mentioned in the rule section, liabilities of statutory guarantees cannot be excluded hence span
and spic cannot rely upon the exclusion clause.
Conclusion
Yes, John is a consumer under ACL and can terminate the contract with span and spic and can
also ask for compensation.
13 Jenny Kojevnikov and Kathryn Edghill, Australia: Statutory Guarantees Under the Competition and Consumer
Act: A Can of Worms - Part 2 (Web Page, 31 March 2012)
<http://www.mondaq.com/australia/x/170910/Consumer+Law/Statutory+Guarantees+Under+the+Competition+and
+Consumer+Act+A+Can+of+Worms+Part+2>

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Bibliography
Cases
Brogden v. Metropolitan Railway Co. (1877) 2 App. Cas. 666
Chappell v Nestle [1960] AC 87
Curtis -v- Chemical Cleaning & Dyeing [1951] 1 KB 805
Harvey v Facey [1893] UKPC 1, [1893] AC 55
James Marson, Business Law (OUP Oxford, 2013)
Olley v Marlborough Court [1949] 1 K.B. 532
Pharmaceutical Society of Great Britain v Boots [1953] 1 QB 401
White v John Warwick & Co Ltd [1953] 2 All ER 1021
Books/Journals
Taylor Richard and Damian Taylor, Contract Law Directions (Oxford University Press, 2017)
Other Resources
Australiancontractlaw.com, Australian Consumer Law: Consumer guarantees (Web Page)
<https://www.australiancontractlaw.com/consumerlaw/guarantees.html>.
Duhaime.org, Invitation to Treat Definition: (Web Page)
<http://www.duhaime.org/LegalDictionary/I/InvitationtoTreat.aspx>.
Jenny Kojevnikov and Kathryn Edghill, Australia: Statutory Guarantees Under the Competition
and Consumer Act: A Can of Worms - Part 2 (Web Page, 31 March 2012)

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<http://www.mondaq.com/australia/x/170910/Consumer+Law/Statutory+Guarantees+Under+the
+Competition+and+Consumer+Act+A+Can+of+Worms+Part+2>
Lawhandbook.sa.gov.au, Implied guarantees for services (Web Page)
<https://lawhandbook.sa.gov.au/ch10s03s02s01.php>.