Contract Law: Validity of Contract, Exclusion Clause and Consumer Rights

This document discusses the validity of a contract, exclusion clause and consumer rights under Australian Consumer Law. It explains the essential elements of a valid contract, rules for exclusion clause and consumer rights under ACL.

Running head: CONTRACT LAW
CONTRACT LAW
Name of the Student:
Name of the University:
Author Note:

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Part A:
Issues involved:
Issue arising here that requires to be analyzed is in what manner the contract is being
created between Stan and the café.
Rules:
A contract is said to be validly created provided all the essential elements are available.
The essentials of a valid contract, legally enforceable are agreement, consideration together with
intention of the parties. Unless all these elements are present, no valid contract can result as
given in Ecosse Property Holdingds Pty Ltd v Gee Dee Nominees Pty Ltd1.
An agreement is usually denoted by a transaction where one party initiates a negotiation
for creating a contract by making an offer to the other party as laid down in Scammell v Ousten2.
The party who initiates the negotiation by making an offer is generally termed as offeror. The
other party here is termed as the offeree. Here the offeror expresses his desire or intention for
creating a contract by signifying the terms, conditions of it by making an offer which is
entrenched in Carlill v Carbolic Smoke Ball Co3. By means of the agreement, there exists a
coincidence of the minds of the parties which is given under the Latin maxim consensus ad idem.
Contract can never be created unless the parties are in sync to the agreement. Thus to result into
a valid agreement, an offer must be given.
1 Ecosse Property Holdingds Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12.
2 Scammell v Ousten [1941] AC 251.
3 Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.

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However such offer is not same as invitation to treat. In case of an offer, the offeror must
be making a definite promise to the other party to convince him to enter into the contract.
However, in case of invitation to treat such certainty is not present. It is necessary to differentiate
between them as an agreement can only be triggered by an offer and not invitation. Invitation to
offer is generally made to the public whoever is ready to make an offer. Here the invitation is
made to unascertained person as seen in Westminster Estates Pty Ltd v Calleja4. In usual
scenario, in cases where services or goods are displayed to the public with price tags, invitation
of offer exists then as in Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd5. Moreover, in case an offer after acceptance an agreement results whereas when
an invitation to offer is accepted, offer is resulted with respect to such invitation.
Another element required for resulting an agreement is the acceptance by the other party
to whom the offer is made as in R v Clarke6. Such acceptance must satisfy three criteria, firstly it
must be unqualified, secondly it has to be unconditional and finally, it has to be communicated to
the offeror.
Acceptance shall absolutely correspond to the offer as in Crown v Clarke7. In case the
offeree specifies any additional conditions or terms on the offer made to him, then it does not
result into acceptance because it is not unconditional or unqualified instead it amounts to a
counter offer as in Hyde v Wrench8. Further the acceptance will not take place unless its
communication is made to the offeror as given in Felthouse v Bindley9. This is because
consensus ad idem will not occur unless the offeror comes to know that his offer is accepted.
4 Westminster Estates Pty Ltd v Calleja [1970] 1 NSWR 526; (1970) 91 WN (NSW) 222.
5 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA Civ 6.
6 R v Clarke [1927] HCA 47, (1927) 40 CLR 227, High Court.
7 Crown v Clarke (1927) 40 CLR 227 (High Court).
8 Hyde v Wrench (1840) Beav 334.
9 Felthouse v Bindley [1862] EWHC J35, [1862] 142 ER 1037, High Court (England and Wales).

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After these are fulfilled, a valid agreement comes into existence and such agreement can be
legally enforced.
Second condition of the contract is the consideration as given in Australian Woollen Mills
Pty Ltd v The Commonwealth10. It is known that consideration is nothing but an exchange of one
promise for another promise. To support such exchange of promises, a consideration must exist
as seen in Popiw v Popiw11. The contract law requires the payment of price against the promise
or some other form of compensation. Here the offeree also called the promisee got the right of
enforcing the contract against the promisor or the offeror only when it has been agreed by the
promisee to pay or award some valuation or has paid or awarded the valuation against the
promise as asked by the offeror or the promisor. In any simple contract, there lie mainly two
promises and hence there will be two considerations.
Here the consideration must not be adequate or total but it has to be sufficient as found in
Chappell & Co Ltd v Nestle Co Ltd12. It means that a minimum amount will be sufficiently
forming a valid consideration though it may not be adequate. Services, goods and even money
are considered as valid consideration but vague promises, moral duties, discharge of any public
duty or current duty will not be considered as suitable consideration.
The fourth essential element of the contract is the parties’ intention to result into a legal
relation among the parties. Contract law provides that contracting parties must be having a
common intention such that the promises made by them can be enforced in a legal manner as
found in Rose & Frank & Co v Crompton13. For determining whether the parties have a legal
10 Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 (High Court).
11 Popiw v Popiw [1959] VR 197.
12 Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87.
13 Rose & Frank & Co v Crompton [1923] 2 KB 261.

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intention, an objective test is performed where it is seen whether any reasonable person in that
situation will consider that parties possess any intention to execute the promises legally
considering all the facts of the situation as found in Air Great Lakes Pty Ltd v KS Easter
(Holdings) Pty Ltd14. To derive at a conclusion, the contract law considers mainly takes into
account two types of agreements; commercial agreement and social and domestic agreements.
In the commercial type of transactions, assumption is made that the parties intended to
affect a legally enforceable agreement to result into legal consequences as found in Winter v
Nemeth15. On the other hand, in case of social and domestic agreements, the parties have no
intention to affect a contract that can be legally enforced. Here the parties make contract out of
love, trust and affection. It has come to the notice that in Todd v Nicol16 where the type of
contract entered by the parties is a family agreement.
Application of the rules:
Here Stan visits a restaurant named MacBig regularly. It has a self- servicing facility
where there is an option to choose food and drinking items from a menu that is displayed on a
touch screen near the entrance. It is an invitation to offer made by MacBig to the customers
visiting it. Invitation to offer is generally made to the public whoever is ready to make offer.
Here the invitation is made to unascertained person. This can be supported by the
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd17 case.
The offer to such invitation can be made by the customers by selecting the product they
want to have and finally approving it by clicking ‘ok’ as entrenched in Pharmaceutical Society of
14 Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309.
15 Winter v Nemeth [2018] NSWSC 644.
16 Todd v Nicol [1957] SASR 72.
17 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA Civ 6.

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GB v Boots Cash Chemists (Southern) Ltd18. This way offer is made by the customers. They are
then issued a ticket showing price along with order number. This amounts to the acceptance
made by the restaurant in response to the offer made by customers. The agreement thus formed is
supported by the price provide by the customers against food or drinks purchased by them. This
amounts to a consideration in the form of money.
Here Stan also did the same after reaching the restaurant and he paid the consideration of
10 dollars in the first instance and enjoyed his food. Thus in the first instance a contract was
formed between Stan and the restaurant and was executed properly.
Few days later, Stan again visited the restaurant to avail the services. In the second visit,
he ordered burger and chips by making an offer by clicking on the food items on the touch screen
an clicking ok. This can be construed as an offer responding to the invitation to offer made by
MacBig on the displaying screen as laid in Australian Woollen Mills Pty Ltd v The
Commonwealth19, High Court. The offer thus given is supported by the price paid by him for the
food provided to them as consideration as given in Beaton v McDivitt20. In response to the
payment, he was issued a ticket showing the price along with order number. This amounts to the
valid acceptance made by the restaurant in response to the offer made by Stan which can be
supported by Tonitto v Bassal21. The price paid by Stan amounts to a consideration in the form of
money. Here Stan paid 17.50 $ as consideration. Here the transaction reveals a commercial type
of agreement as the parties have legal intention behind the transaction. This can be supported by
Helmos Enterprises Pty Ltd v Jaylor Pty Ltd22, Court of Appeal (NSW). In the commercial type
18 Pharmaceutical Society of GB v Boots Cash Chemists (Southern) Ltd [1956] EWCA 6, [1953] 1 QB 401.
19 Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20, (1954) 92 CLR 424.
20 Beaton v McDivitt (1987) 13 NSWLR 162.
21 Tonitto v Bassal (1992) 28 NSWLR 564.
22 Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235.

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of transactions, general presumption is that the parties intended to affect a legally enforceable
agreement to result into legal consequences.
Here, a contract is said to be validly created between Stan and the restaurant as all the
essential elements are available. The essentials of a valid contract that can be legally enforced
which are the agreement, consideration and intention of the parties are all present in this
scenario. Unless all these elements are present, no valid contract can result as given in Ecosse
Property Holdingds Pty Ltd v Gee Dee Nominees Pty Ltd23.
Conclusion:
Therefore, a valid contract is created between the café and Stan as the essentials of a
valid contract are present.
Part B:
2. Issue:
The issue is that whether the exclusion clause can be considered to be valid under the
common law of contract.
Rules:
Exclusion clause denotes a term present in the agreement of the contract which is
intended to limit or restrict the parties’ rights and liabilities to the contract to determine whether
such exclusion clause is effective, two conditions are checked.
First condition is the incorporation of the clause in the contract. There are generally three
methods by which such clause can be incorporated. They are by means of signature by both
23 Ecosse Property Holdingds Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12.

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parties as seen in L’Estrange v E. Graucob Ltd24, by notifying the other party by the party who
wants to rely on such clause as laid down in Parker v South Eastern Railway25 or by means of
prior same type of dealings among the same parties as elaborated in McCutcheon v David
MacBrayne Ltd26.
The second condition to be present is laid down in the contra proferentum rule which
says that if the clause is found to be uncertain or ambiguous, then it will be applied against the
party who is relying on it as laid in Houghton v Trafalgar Insurance Co. Ltd 27.
Moreover, the clause will be always interpreted by means of its ordinary and natural
meaning as laid in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds28 such that there lies
no misrepresentation.
Apart from this, the four corners rule is also referred. In Australia, this rule is adopted
and preferred over the fundamental breach idea found in Sydney City Council v West (Ticket
case)29. This rule states that it will be presumed by the court that the parties in the contract cannot
exclude their liabilities in case losses arise from any act which is not authorized by the contract
law. But it will apply in case where negligence appears.
Application:
On his second visit to the café, Stan broke his tooth due to the presence of a metal piece
inside the burger. When he claimed compensation for his dental repair to be done due to the
broken tooth, the management showed the reverse side of the ticket which contains an exclusion
24 L’Estrange v E. Graucob Ltd [1934] 2 KB 394.
25 Parker v South Eastern Railway [1877] 2 CPD 416.
26 McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125.
27 Houghton v Trafalgar Insurance Co. Ltd [1954] 1 QB 247.
28 George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803.
29 Sydney City Council v West (Ticket case) [1965] HCA 68, (1965) 114 CLR 481.

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clause. The exclusion clause refers a term present in the agreement of the contract which is
intended to limit or restrict the rights and liabilities of the contracting parties to determine
whether an exclusion clause is valid, 2 main criteria are checked.
The clause cannot be enforced by the café as the clause was incorporated neither by
signature, notice nor past transactions. Moreover, by applying the four corners rule, the clause is
not applicable.
Conclusion:
Hence, the exclusion clause under the common law of contract cannot be considered to
be valid.
2. Issue:
The issue to be discussed here is whether Stan is a consumer as per Australian Consumer
Law of Schedule 2 to the Competition and Consumer Act 201030 and the rights possessed by him
as a consumer.
Rules:
Section 331 of the ACL provides the meaning of consumer. It states that a person will be
regarded as consumer if he has taken goods not exceeding 40,000$ and such goods are taken for
consumption.
Section 5432 of ACL provides the guarantees pertaining to the acceptable quality. It states
that if supplier gives goods to any consumer then such goods must possess the acceptable
30 Australian Consumer Law of Schedule 2 to the Competition and Consumer Act 2010.
31 Australian Consumer Law s3.
32 Ibid s 54.

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quality. A good is said to be of acceptable quality when the goods fit the reason for which they
are served and must be safe.
Section 25933 says that a consumer has the right to take actions against a supplier if the
guarantee is not complied with. In case remedy is available to such failure and it does not amount
to a major failure then the supplier can seek remedy it within a period which is or may be
required to compensate the consumer all the reasonable costs. However if the failure does not
have any remedy, then it is a major failure. Here, the consumer can recover damages.
Section 26034 states that a major failure will take place when the goods are not fit to be
used for the purpose it was acquired.
Section 6435 provides that no guarantee can be excluded by means of a contract and such
term will be considered as void if it excludes, restricts or even modifies any of the guarantees.
Application:
Under section 336 of ACL, it is observed that Stan is a consumer as the amount paid by
him for the purchase of burger with chips is less than 40,000 $ and it was bought by Stan for
consumption.
Consumer guarantee of acceptable quality given under section 5437 is applied here. It
states that if one supplier of goods supplies goods to the consumer then such goods shall be of
quality which is acceptable. A good is said to be of acceptable quality when the goods fit the
33 Ibid s 259.
34 Ibid s 260.
35 Ibid s 64.
36 Australian Consumer Law s3.
37 Ibid s 54.

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reason for which they are served and must be safe. The burger is not of acceptable quality as it
got metal piece in it. Hence section 54 is violated.
According to Section 25938, the failure suffered by Stan is a major failure. His tooth broke
down which cannot be remedied. Hence he can claim damages for his upcoming surgery.
As per section 6439, no guarantee can be modified and such term of the contract will be
held void.
Conclusion:
Thus, it can be inferred that Stan is a consumer as per the Australian Consumer Law and
hence he can seek remedy for the loss suffered by him.
38 Ibid s 259.
39 Ibid s 64.

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References:
Cases:
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309.
Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 (High Court).
Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20, (1954) 92 CLR 424.
Beaton v McDivitt (1987) 13 NSWLR 162.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
Chappell & Co Ltd v Nestle Co Ltd [1960] AC 87.
Crown v Clarke (1927) 40 CLR 227 (High Court).
Ecosse Property Holdingds Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12.
Felthouse v Bindley [1862] EWHC J35, [1862] 142 ER 1037, High Court (England and Wales).
George Mitchell (Chesterhall) Ltd v Finney Lock Seeds [1983] 2 AC 803.
Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235.
Houghton v Trafalgar Insurance Co. Ltd [1954] 1 QB 247.
Hyde v Wrench (1840) Beav 334.
L’Estrange v E. Graucob Ltd [1934] 2 KB 394.
McCutcheon v David MacBrayne Ltd [1964] 1 WLR 125.

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Parker v South Eastern Railway [1877] 2 CPD 416.
Pharmaceutical Society of GB v Boots Cash Chemists (Southern) Ltd [1956] EWCA 6, [1953] 1
QB 401.
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] EWCA
Civ 6.
Popiw v Popiw [1959] VR 197.
R v Clarke [1927] HCA 47, (1927) 40 CLR 227, High Court.
Rose & Frank & Co v Crompton [1923] 2 KB 261.
Scammell v Ousten [1941] AC 251.
Sydney City Council v West (Ticket case) [1965] HCA 68, (1965) 114 CLR 481.
Todd v Nicol [1957] SASR 72.
Tonitto v Bassal (1992) 28 NSWLR 564.
Westminster Estates Pty Ltd v Calleja [1970] 1 NSWR 526; (1970) 91 WN (NSW) 222.
Winter v Nemeth [2018] NSWSC 644.
Legislation:
Australian Consumer Law of Schedule 2 to the Competition and Consumer Act 2010.