Business Law Assignment on Contract Formation and Exclusion Clauses

This assignment discusses the essential elements for the creation of a valid and enforceable contract, including offer, acceptance, consideration, intention, capacity, and illegality. It also analyzes the validity of exclusion clauses in contracts and their applicability in protecting the guilty party from incurring liability for breach of contract.

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Name of Student
Name of Institution
Instructor
Date
Business Law Assignment

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PART A: Contract Formation
Introduction
A contract is an agreement entered into between two or more persons which is binding on
the parties and is capable of enforcement before a court of law. The formation of a legally
binding contract is procedural and has to encompass all the essential requirements for it to obtain
a legally binding status. The essential elements for the creation of a valid and enforceable
contract therefore include; offer, acceptance, consideration, intention, capacity and illegality.
A contract begins with the making of an offer; which if accepted leads to an agreement.
Whether there was an offer
The display of items/menu on the screen by ChunkyChicken restaurant is not an offer. It
is referred to as invitation to treat in contract law1. Rachel made an offer by selecting a product
object on the screen which ChunkyChicken restaurant had the choice to accept or reject. This
practice by ChunkyChicken restaurant can be equated to the display of goods in supermarkets
and shop windows as well as advertisements which courts have ruled to be invitation to treat and
not an offer.
In the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
Ltd2, it was held that displaying goods on shelves amounted to an invitation to treat and not an
offer. A similar finding was arrived at when goods were displayed on a store window in the case
of Fisher v Bell3. The offer was therefore made by Rachel since the items/food displayed on the
screen was an invitation to treat.
Whether there was acceptance
1 Andrews, Neil. Contract law (Cambridge University Press, 2015)
2 (1952) 2 QB 795
3 (1961) 1 QB 394

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The offer was made to ChunkyChicken Restaurant. The person who makes the offer is
referred to as the offeror while to whom the offer is made is known as the offeree. Acceptance of
the offer happens at the point where a receipt is printed containing the order number and the
amount to be paid by the customer. The rules of acceptance have to be complied with i.e
acceptance must be communicated to the offerror within reasonable time and it should be clear
and unambiguous. Acceptance of an offer is what creates an agreement between the contracting
parties.
Intention to create legally binding obligations
A contract will only be enforceable where all the parties to the contract were willing to be
bound and developed the necessary intention to enter into the contract. Intention of the parties to
contract can be ascertained by use of presumptions; for instance, in a commercial or business
transaction, courts presume that the parties had the intention to create legally binding
relationship4.
In Carlill v Carbolic Smoke Ball Co, the defendant argued that the cash offered as a
reward in a newspaper advert for the promotion of sales amounted to an advertising stunt and
that no intention existed to create a binding and enforceable contract in the circumstances. The
court held that such advert created an intention and therefore a contract existed, being a
commercial or business transaction. ChunkyChicken restaurant being a business establishment,
there is presumption that the parties had intended to be bound by the terms of the contract
between them.
Capacity
4 Anson, William Reynell, Jack Beatson, Andrew S. Burrows, and John Cartwright Anson's law of contract (Oxford
University Press, 2010)

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There are certain categories of individuals who are incapacitated and do not qualify to
enter into contracts. Contracts entered into by children, insane persons and those who have been
adjudged bankrupt are not binding. However, a contract entered into by a minor for necessaries
is binding and enforceable. Rachel is of majority age and ChunkyChicken Restaurant being a
business entity in the normal cause of business, both parties had the capacity to enter into a valid
and legally enforceable contract.
Was the contract legal?
ChunkyChicken has been operating and selling foodstuff. There is a presumption that it
has obtained all the required licenses to enable it carry such a business. The restaurant sells food
which is not an illegal substance5. Therefore, there is no illegality emanating from the facts of
this case and the contract between the parties is legal from the circumstances.
Was there consideration
Consideration is the agreed price in a contract between parties. Consideration is an
essential element in a contract especially for simple contracts which must be supported with
consideration to be legally binding and enforceable6. In this case, the consideration is the price
paid by Rachel for the gourmet chicken burger and hand cut chips.
What were the terms of the contract?
A contractual term is what the parties have agreed on. A term can either be a condition or
a warranty. Conditions are the essential and mandatory terms without which there is no contract.
A warranty on the other hand are those terms that are ancillary to the contract; they do not go to
the root oof the contract but lure parties during negotiations to enter into the contract.
5 Chen-Wishart, Mindy. Contract law (Oxford University Press, 2012)
6 Coffee Jr, John C., Hillary Sale, and M. Todd Henderson "Securities regulation: Cases and materials."
(2015).

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The contract between Rachel and ChunkyChicken restaurant is an electronic type of
contract which also qualifies as a standard form contract. The terms are not agreed to between
parties but are determined unilaterally by one party7. The other party has no choice but to accept
the terms. These terms are normally printed out in small fonts and parties do not bother to read
and understand them before entering into the contract. By clicking okay tab on the touch screen
where there was display, Rachel accepted the terms of the contract even though she did not take
time to read.
Part B
Issue
The main issue for determination in this case scenario is whether ChunkyChicken can
rely on the exclusion clause contained in the electronic terms and conditions in order to avoid
being liable for the injury caused to Rachel.
Rule
Exclusion clauses refer to terms contained in a contract document that seeks to limit or
exclude the liability of a party who is in breach of the contract. Exclusion clauses are common in
written contracts. There are rules that have been developed to determine the applicability of
exclusion clauses and circumstances when they apply to protect the guilty party from incurring
liability for breach of contract. The validity of such clauses therefore depends on whether they
appear on signs, unsigned documents or signed documents8.
Where the document has been signed, the person signing the document will be bound by
the terms contained therein. It is irrelevant whether such person read or did not read the contents
7 Furmston, Michael Philip, Geoffrey Chevalier Cheshire, and Cecil Herbert Stuart Fifoot Cheshire, Fifoot and
Furmston's law of contract (Oxford University Press, 2012)
8 Hogg, Martin. Promises and Contract Law: comparative perspectives (Cambridge University Press, 2011)

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of the document. This is the signature rule established in the case of L’Estrange v Graucob
Ltd9.The person signing the document can avoid being bound only if there was fraud,
misrepresentation or he can claim non est factum.
Where the document sought to be relied upon is unsigned the court has to determine
whether the clause sought to be relied upon is a term of the contract10. Where the clause is a
contractual term, the party at fault will escape liability but where it is not a term of the contract,
it will not bind the innocent party.
There are two tests that the courts apply in this circumstance:
1. Nature of the document test; and
2. Reasonable Notice test.
Where the document is contractual, there is a duty on the part of the person seeking to rely on the
exclusion clause to give reasonable notice to the other party of the existence of such clause prior
to or at the time of entering into the contract. This issue was considered in the case of Thornton v
Shoe Lane Parking Co 11where, the claimant sustained injuries in a car park. The claimant had
been given a ticket after putting money in a machine. A clause at the back of the ticked excluded
liability on the part of the car park for injury sustained in the car park. The court held that the
clause was not incorporated into the contract and the defendant could not rely on it to avoid
liability.
Application
The terms and conditions sought to be relied upon by ChunkyChicken restaurant popped
up on the screen after Rachel had selected what to buy. Such terms had not been brought to the
9 (1934) 2 KB 394
10 Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince Problems in Contract Law: cases and materials (Wolters
Kluwer Law & Business, 2016)
11 (1971)4 CLR 379

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notice of Rachel prior to contract formation. The clause further does not constitute a contractual
term and therefore it had not been incorporated into the contract. This was the opinion of the
court in the case of Thornton v Shoe Lane Parking Co12.Rachel learnt of the clause so late in the
day after she had suffered injury. Being a standard form contract, courts will apply the exclusion
clause against the party seeking to rely on it.
Conclusion
In conclusion therefore, ChunkyChicken restaurant cannot rely on the exclusion clause
contained in the electronic terms and conditions in order to avoid being liable for the injury
caused to Rachel. This clause was not brought to the attention of Rachel at the time of forming
the contract. Further, the clause is not a contractual term and as a result, it cannot be relied upon
to exclude liability for the injury suffered in the circumstances.
12 (1971)4 CLR 379

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Bibliography
Andrews, Neil. Contract law (Cambridge University Press, 2015)
Anson, William Reynell, Jack Beatson, Andrew S. Burrows, and John Cartwright Anson's law of
contract (Oxford University Press, 2010)
Chen-Wishart, Mindy Contract law (Oxford University Press, 2012)
Coffee Jr, John C., Hillary Sale, and M. Todd Henderson "Securities regulation: Cases and
materials." (2015).
Furmston, Michael Philip, Geoffrey Chevalier Cheshire, and Cecil Herbert Stuart
Fifoot Cheshire, Fifoot and Furmston's law of contract (Oxford University Press, 2012)
Hogg, Martin. Promises and Contract Law: comparative perspectives (Cambridge University
Press, 2011)
Knapp, Charles L., Nathan M. Crystal, and Harry G. Prince Problems in Contract Law: cases
and materials (Wolters Kluwer Law & Business, 2016)
Case Law
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd (1952) 2 QB 795
Fisher v Bell (1961) 1 QB 394
Carlill v Carbolic Smoke Ball Co [1892] EWCA Civ 1
L’Estrange v Graucob Ltd (1934) 2 KB 394
Thornton v Shoe Lane Parking Co (1971)4 CLR 379