Business Law: Contract Formation and Implied Terms

This study material covers the topics of contract formation and implied terms in business law. It discusses the case of Partridge v Crittenden and the principles of offer and acceptance. It also explains the three ways in which terms can be implied in a contract, namely, terms implied at law, terms implied in fact, and terms implied via custom. Additionally, it covers the Australian Consumer Law and the rights of consumers, including consumer guarantees and remedies. The material includes relevant case laws such as Shell UK v Lostock Garage Limited and Liverpool City Council v Irwin.

Running Head: BUSINESS LAW
Business Law
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Author Note

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Question 1
Part A
The facts
The advertisement which Magda has made to sell a portrait of Paris Stilton states that it has the
value of $2000. It is a limited edition portrait and has only three prints. Only one portrait is
unsold.
This is an invitation to offer in relation to the law of contract. The case of Partridge v
Crittenden [1968] 1 WLR 1204 made a ruling when a person makes an advertisement it should
be considered as invitation to offer. An invitation to offer cannot be accepted unlike a normal
offer rather an offer can be made where there is an invitation to offer.
Sunday 19 February
1. Avinash had made an offer to purchase the portrait at a price of $1,600 by using the email
address which had been provided through the website. This is an offer because as per the
case of Smith v Hughes (1871) LR 6 QB 597 an offer requires intention of binding a
party who accept it to its terms. The intention is derived objectively. In addition an offer
has to be complete and here the offer made by Avinash is complete. In commercial
agreements intention is deemed as stated in Edwards v Skyways Ltd [1964] 1 WLR 349
and as this is a commercial agreement to purchase the portrait intention will be deemed
on the part of Avinash.
2. Magda has immediately replied stating that she can only sell the portrait for no less than
$1800. This statement is a counter offer. The case of Hyde v Wrench [1840] EWHC

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Ch J90 best deals with a counter offer. The case states that a counter offer is made when
the original offer is not accepted unequivocally. The term of the original offer has to be
matched exactly by the acceptance or else it becomes a counter offer. A counter offer
when made defeats or terminates the original offer. The termination makes the offer to
come to an end and as a result it is no longer available to be accepted.
3. Inquires are different to a counter offer and asking or giving information does not
terminate the original offer. In addition the statement ‘hold the portrait so he and his wife
can discuss the matter’ does not create any obligation for Magda.
4. The offer had been restated by Magda again with an additional term that it is open till
Tuesday 21 February. So this is a fresh offer.
Monday 20 February
5. A counter offer is made by Avinash in this situation as he has demanded a “certificate of
authenticity” which was not a part of the original offer. He states that he is willing to pay
$18000
6. Magda although signifies that she is willing to follow the terms of his offer, she asks him
to reconfirm by 4 pm on 20th feb. This mail had been sent at 9:30 by Magda. This is a
new offer altogether as the time of acceptance has been altered. However Avinash
believing he has until Tuesday 21 February did not reply.
7. Elton made an offer at 11am to buy the portrait at $2000. This is also an offer as it is a
commercial transaction.
8. At 11:30 Magda informs Avinash that the portrait is sold. She has the legal right to do so
under the principles of revocation of an offer as provided through the case of Dickinson

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v Dodds (1876) 2 Ch. D. 463 where it was stated that the offer can be revoked before it
has been accepted. Revocation means the withdrawal of an offer.
Tuesday 21 February
At 9.45 am, Avinash tries to accept the offer to purchase the painting at $1800. He did not
receive the revocation. In Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344 the
court stated that revocation cannot be effective if it’s not received and postal or electronic rule of
communication is not applied in revocation. However the offer had already elapsed by time as
discussed in para 6 and thus cannot be accepted according to the principles of Ramsgate
Victoria Hotel v Montefiore (1866) LR 1 Ex 109.
9. .
Finding
There is no meeting of minds (Offer and Acceptance) between Magda and Avinash and thus no
contract is formed
Part B
Identified Issue
The Australian Consumer Law provides certain rights to people who fall within the means of
consumer. The following issues have been identified in this case
1. Whether Elton is a consumer under the ACL
2. Whether Magda has breached any consumer guarantees
3. If the guarantees have been breached what rights does Elton have in the situation

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Relevant Law
MEANING OF CONSUMER
A person is to be regarded as a consumer under section 3 of the ACL if such person has purchase
a product which has a value of $40000 or less and/or the goods have not been purchased form
household and domestic use or he goods involve a vehicle purchased for transport purpose.
However, even if such criteria are met and the goods are procured for resupply or production
then section 3 will not apply.
MISLEADING AND DECEPTIVE CONDUCT
Under section 18 of the ACL in the course of trade and commerce a person is prohibited from
acting in a way which is “misleading and deceptive or is likely to mislead or deceive”. False
advertisement is a misleading conduct as per ACCC v TPG Internet Pty Ltd [2013] HCA 54
CONSUMER GUARANTEES
Consumer guarantees are those which have been provided under section 51-59 of the ACL.
Section 56 deals which a provision which is related to description of goods. This means that
when goods have been supplied in the course of trade and commerce to a person who is a
consumer by the use of description of the goods than such goods have to have the exact features
which had been mentioned in the description. If the provisions of this section have not been
complied with and there is discrepancy between the description and the actual goods received
that it would lead to the breach of consumer guarantees.
CONSUMER REMEDIES

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The provisions related to consumer remedies have been provided under section 260 and 261 of
the ACL. Where there is a major breach which means the breach in relation to section 54-56 of
the ACL it will allow the consumer to breach reject the goods and claim a refund under section
260 of the ACL.
Application
Elton will be regarded as a consumer under section 3 of the ACL if he has purchase a product
which has a value of $40000 or less and/or the goods have not been purchased form household
and the goods are not procured for resupply or production. Here he has purchased a painting for
$2000 and it is not for a resupply or production use thus he is to be regarded as consumer.
It was stated in the advertisement that the portrait of Paris Stilton has the value of $2000. It is a
limited edition portrait and has only three prints. Only one portrait is unsold. It is made on
archive quality paper and it is a limited edition where only the copies have been made. However
in reality it turned out that the paper is of a very low quality and is losing colour and more than
10 paintings gave been sold. Here the portrait is sold by a description and it does not match the
description so the provisions of section 56 have been breached.
Under section 260 it is stated that where there is a major breach which means the breach in
relation to section 54-56 of the ACL it will allow the consumer to breach reject the goods and
claim a refund. Thus as section 56 have been breached Elton can reject the goods and claim a
refund.
Section 18 prohibits misleading and deceptive conduct and as per the case of ACCC v TPG
Internet Pty Ltd false advertisement is a misleading and deceptive conduct. The portrait was
actually not limited edition and thus it is a misleading and deceptive conduct.

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Conclusion
Elton can claim for breach of consumer guarantees and Magda can be liable for breaching
section 18

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Answer 2
At common law courts are reluctant to imply terms into a contract as stated in the case of Shell
UK v Lostock Garage Limited [1976] 1 WLR 1187. It is the role of the parties to ensure that they
have properly agreed to the terms of the agreement which they enter into. The court does not
have the role to rewrite the agreement for the parties. However there are certain limited situations
where the court can imply terms into a contract. These are by the following ways
1. Terms implied at Law
2. Terms implied in Fact
3. Terms implied via custom
Implied terms at law
Implied terms may be added by the courts in relation to the contract when such terms are of
defined kind such as retailer/customer where general protection is provided to the weaker party
as discussed by the court in the case of Liverpool City Council v Irwin [1977] AC 239. Even if
the contract is of a defined kind between the parties the terms would only be added when it is
reasonable according to Wilson v Best Travel [1993] 1 All ER 353. In Shell UK v Lostock
Garage Limited [1976] 1 WLR 1187 the court stated that implied terms has to be sufficiently
certain for the purpose of being added. Thus where the there is a contract between two parties
and one is a consumer than the court may add any term to the contract to provide the consumer
the protection which has been provide to them by law. These terms can be considerably
beneficial for the consumers. A few example of such protection is provided via the implied
consumer guarantees which have been provided under the provisions of section 51-59 of the
ACL.

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Terms implied via customs
In case a term is prevalent through customs in a particular trade the court may imply that the
term is present in the contract relating to such trade as stated by the court in the case of Hutton v
Warren [1836] EWHC Exch J61. Thus if in the shipping industry it is a custom to provide the
bill of lading it would be considered as an implied term. This would help the party make a claim
even if the presentation of the bill of lading had not been expressly dealt with in the written
contract.
Terms implied in fact
There are two types of test which are present in the situation namely the business efficacy test
and the officious bystander test. The business efficacy test had been discussed in the case The
Moorcock (1889) 14 PD 64. The court in this case stated when the term is needed to give
“business efficacy” to the agreement it’s implied by the courts. Thus when person is going to a
parking to keep his car it will be implied that the car would be kept safe. Thus it can be stated
that here also the party who parked the car will benefit from the implied term. The officious
bystander test on the other hand operates to add terms which have been suggested by an officious
bystander when the contract had been formed between the parties. The court however only adds
an implied term when it is necessary and obvious to carry out the contract rather than when it is
just and reasonable. The breach of an implied term is also a breach of a contract.
Express terms are the terms which have been agreed by the parties to be added to the contract.
They must be terms rather than representations.

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In relation to the facts form question one it can be stated that it is an express term that the quality
of the paper is acid free and archive quality. It is an implied term in the contract that if such is
not the case than the purchase can take a refund.

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References
ACCC v TPG Internet Pty Ltd [2013] HCA 54
Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344
Dickinson v Dodds (1876) 2 Ch. D. 463
Hutton v Warren [1836] EWHC Exch J61
Hyde v Wrench [1840] EWHC Ch J90
Liverpool City Council v Irwin [1977] AC 239
Partridge v Crittenden [1968] 1 WLR 1204
Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109.
Shell UK v Lostock Garage Limited [1976] 1 WLR 1187
Smith v Hughes (1871) LR 6 QB 597
The Moorcock (1889) 14 PD 64
Wilson v Best Travel [1993] 1 All ER 353