Business Law: Contract Formation, Terms and Consumer Guarantees

This article discusses the formation of a contract, terms, and consumer guarantees under Australian Consumer Law. It analyzes the case of Franco and the ski resort to explain the legal concepts. The article also provides relevant case laws and their application to the case.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note

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Question 1A
Issue
Franco has entered into a contract with the resort. The issue is to determine whether a
valid contract has been formed between them in consideration of elements of contract formation
and a valid contract.
The issue is also to determine the ways in which a contract can come to end and also
what remedies can Franco pursue legally against the resort.
Law
The formation of a contract needs offer and acceptance (Agreement), intention of being
bound legally and consideration.
Offer and invitation to treat are different. An advertisement is only an invitation which is
not given any legal status under contract law as per Partridge v Critenden (1968) 2 All ER 425.
Offer will be present of a person makes an expression which any prudent individual will fell as
having legal intention as per Harvey v Facey [1893] UKPC 1. An agreement is completed
when an offer is accepted by the other party. The process of accepting the offer is called
acceptance. Acceptance can be found only if the other person has not made any alterations to
offer clauses and have effectively notified the offeror about accepting the offer as per Hyde v
Wrench (1840) 49 ER 132. A contract requires exchange of promises having value provided by
the parties to the contract. These valuable promises are essential for the formation of a contract
and are called consideration as per Williams v Roffey Bros [1990] 2 WLR 1153. A contract
cannot be formed if the parties do not intend to be bound to the terms in a legal way. This

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intention is identified objectively and is an essential element of contract Jones v Padavatton
[1969] 1 WLR 328.
A contract will be taken as valid in court in case the parties had the capacity to form a
contract, the subject matter was legal and the consent was free. Free consent signifies absence of
duress, unconscionability, misrepresentation and undue influence. A person has to be more than
18 years and of a sound mind to be capable of a contract. The consent must not be obtained
through any force of fraud or taking advantage of the position of another person. In case the
consent is not free the contract will be voidable.
A contract can come to an end in varies ways. These ways include discharge, breach,
mutual agreement and frustration. In case the contract has been breached a party can claim losses
which have been incurred as the breach has been made. In the case of Addis v Gramophone
[1909] AC 488 the compensation for breach was discussed by the court. The courts aim to put
the plaintiff in position where the contract was not breached. The court may also allow the
plaintiff to get out of the contract without having any obligations also in case of breach.
Application
There has been an advertisement made by the resort that they are going provide special
services to the guests. As this is an advertisement it would be an invitation and under Partridge v
Critenden it would not be given any legal status. Franco has been made an offer when he visited
the office of the resort by the manager. This was an offer as it contained adequate details such as
price and services to be provided for a reasonable person to consider it as an offer. The offer at
$375 had been accepted by Franco. The commercial agreement had pre-established intentions
and the consideration was the say in the resort and $375 for the room. Thus, a contract is created

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between the parties. Franco neither speaks very good English nor can he understand terms and
conditions in relation to the resort booking. At the time of explaining the offer the manager was
aware that Franco did understand the terms properly because of weak English. In this situation it
can be stated that the contract is not valid because of being unconscionable conduct done by the
manager. The manager took advantage of a special disability of Franco and acted in bad faith by
not making him understand the terms of the contract.
When the contract was made it was assured to Franco that he would be provided with
panoramic view from the resort. However, he did not find any such views from the resort rooms.
This means that the terms of the contract have been breached and the contract has been ended
because of it. The policy of no refund would not be considered as it was not conveyed to Franco
properly because of unconsionability. As this is a breach of contract Franco would be entitled to
be restored in the position of the contract was performed as far as possible by damages. He can
claim the money paid by him and also any damages for the loss of enjoyment.
Conclusion
Franco of effectively make a claim for breach of contract from the Ski resort.
Question 1 B
Issue
The issue is to differentiate between a term of a contract and a representation. The
differentiation between a condition and a warranty is also an issue. The issue is also to analyze
the importance of a collateral contract.
Law

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The factors which are present to separate terms and representation include, timing,
parties’ expertise, the importance of the term being notified and the parole evidence rule. In
Oscar Chess v Williams [1957] 1 WLR 370 it had been stated by the court that if the
representee has additional knowledge than the representor than the statement is a term and
conversely if more knowledge is preset with the representor the term is representation. In Ecay v
Godfrey [1947] 80 Lloyds Rep 286 the judges stated that if the importance of a statement is
conveyed it is a term of the contract. In Routledge v Mckay [1954] 1 WLR 615 the judges ruled
that the less time passed after the discussion of the statement more likely is the statement a term.
The parole evidence rule is a contract law principle according to which a party cannot claim a
statement to be a part of a contract term in case the terms of the contract has been written down
in a document and the statement is not a part of the document.
Conditions and warranties are types of terms in a contract and are distinguished based on
their importance in light of the contract. Conditions are the primary terms of the contract which
make the basis of the contract. The rules of conditions were discussed in the case of Poussard v
Spiers (1876) 1 QBD 410. The court ruled that if a person is found to have breached the
conditions of a contract they would not only have to compensate the other party but will also
have to allow the other party get out of all contractual obligations under the contract. If a term is
basis of contract formation it is a condition. The warranties are ancillary terms in a contract.
Although they are contract terms, if breached they do not provide the aggrieved party the right to
get out of the contract. The breach only entitles them to claim damages which have been suffered
in relation to the breach as per the case of Bettini v Gye 1876 QBD 183.
Collateral contract is a formed between the parties as a addition to the main contract. In
this case the consideration which is given for the formation of a collateral contract is that the

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party will enter the main contract. The breach of collateral contract also entitles damages to the
aggrieved party under the case of Evans & Sons Ltd v Andrea Merzario Ltd [1976] 1 WLR
1078.
Application
The first step is to find out that whether the rooms would provide a panaromic view is a
term of the contract or only a representation. This can be done by applying the ways to
distinguish between a term and a representation discussed above. The contract was signed
between Franco and the resort manager immediately after the correspondence between them
about the panoramic view has ended. This would make the panoramic view from the resort a
term of the contract. The manger had more knowledge about the fact that it was peak season and
all rooms may not have panoramic view as compared to the knowledge of Franco. Thus the
application of Oscar Chess v Williams would make the panoramic view a term of the contract as
the manager is the representor. In addition the importance of the panoramic view from the rooms
was also conveyed by Franco to the manager. This means that the application of Ecay v Godfrey
would make panoramic view for the resort rooms a term of the contract.
The term can be stated as a condition rather than a warranty. This is because Franco has
paid a price which he considered to be very high only because he wanted the panoramic view. In
case the contract did not have the panoramic view from the rooms term, he would have not got
into the contract for a higher price. This means that the rooms’ having a panoramic view is a
fundamental term of the contract and a condition. The breach of the term will allow Franco to
end the contract and make a claim for compensation. in case the terms was not written in the

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document signed by Franco it would still be part of the contract in from of a collateral contract
which is an exception to the parole evidence rule.
Conclusion
The Panoramic view from the hotel rooms is a term of the contract and also a condition
rather than a warrantee.
Question 2
Issue
The Australian Consumer Law also provides rights to consumers in Australia in terms of
goods and services. The issue is to discuss the rights available to Franco under the legislation.
Law
The guarantees under the legislation are given is part 3-2 of ACL schedule 2 to
Competition and Consumer Act 2010 (Cth)
Any person purchasing services or goods valued less than $40000 is a consumer if they
purchase is for domestic and private use and not for any kind of trade or resupply as under s 3
ACL.
Consumer Guarantees implies in a contract for sale of goods and services a few terms
even if they are not expressly contemplated by the parties. These terms cannot be excluded by
the seller form the contract as given in s 64.
Under s56 the goods are to be in correspondence with the description which was used to
sell them. It has been further provided by s.61 that services have to be fit for the propose they

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have been obtained for. This means that of the buyer has specifically conveyed to the service
provided that the services are needed for a special reason, it is a requirement under s 61 that the
services would have to be fit for the reasons. In case the services are not fit for the specific
reason it is a breach of this guarantee.
Under s 156 the ACL also prohibits any form of misleading conduct in relation to
services. In situation of the breach of consumer guarantees the consumers are given the right to
get “repair, refund or replacement”. The rules for taking actions against the suppliers of services
are set out in s 267 of ACL. Under the section the consumer is allowed to take action against the
supplier if they have failed to meet with the consumer guarantees in relation to the services and
there is fault on the part of the consumer. The non compliance with the guarantees would be
taken as a major failure if a reasonable person would not have acquired the services if he was
aware about its true nature under s 268. The contract of services can be terminated via s 269 if
an application is made under s 267 of ACL.
Application
Here the price paid by Franco is less than $40000. Further, the services of the resort have
been acquired by him for private use. This means he is a consumer under s 3 of ACL. In this
situation he had conveyed to the manager that he needs the hotel rooms having panoramic view.
This is the reason why he had paid a higher price. In relation to such facts it can be stated that s
61 have been violated by the manager as he had promised that the rooms would include a
balcony and a panoramic view which was not there in the present case. The services are not fit
for the purpose they were supplied for. The managers denies refund to Franco stating that it is
not allowed by the policy. However, s 64 implies that no term can limit the right of a person to

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claim a remedy under the ACL. Thus the term would not be valid. Further it can be stated that
under s 267 Franco can bring an action against the resort as they have failed to meet with the
consumer guarantees in relation to the services and there is fault on the part of Franco. Under s
268 the breach would be considered as a major failure done by the resort as a reasonable person
would not have acquired the services if he was aware about that the resort will not provide rooms
having panoramic view at a high price. Thus, the operation of s 269 would allow Franco to
terminate the contract for services with the resort.
Conclusion
Franco has the right to get the contract terminated and claim damages.

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References
Addis v Gramophone [1909] AC 488
Bettini v Gye 1876 QBD 183.
Competition and Consumer Act 2010 (Cth)
Ecay v Godfrey [1947] 80 Lloyds Rep 286
Evans & Sons Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078
Harvey v Facey [1893] UKPC 1
Hyde v Wrench (1840) 49 ER 132
Jones v Padavatton [1969] 1 WLR 328.
Oscar Chess v Williams [1957] 1 WLR 370
Partridge v Critenden (1968) 2 All ER 425
Poussard v Spiers (1876) 1 QBD 410
Routledge v Mckay [1954] 1 WLR 615
Williams v Roffey Bros [1990] 2 WLR 1153