Elements of a Valid Contract and Liability of Exclusion Clause

This study material discusses the essential elements of a valid contract, including offer, acceptance, consideration, and intention. It also explores the liability of exclusion clauses and the rights of consumers under the Australian Consumer Law. The material provides a detailed analysis of a scenario involving a café and a customer, highlighting the presence of these elements and the enforceability of the exclusion clause.

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Business and Company Law

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ANSWER 1 (A)
In order to determine whether a valid contract has formed between two or more parties
or not, it is important to assess whether certain elements are present or not. Without
the availability of these elements, parties did not enter into a legal relationship that is
enforceable on them. Thus, these are considered as the essential elements without
which a contract cannot be formed. The evaluation of these elements is important in
order to assess how a contractual relation is constructed and whether it is enforceable
on the parties to determine its legality. These elements are necessary to be present to
ensure that the steps taken by Avinash while he visited his local café resulted in creating
a contractual relationship between the parties.
The evaluation begins with the first crucial element which is also the starting point of
formation of a contract: an offer. However, whenever parties made an offer, it did not
lead to creating a contract between them. The key part of this element was provided by
the court in Harvey v Facey.1 When it comes to determining the validity of an offer, the
provision given in this judgement can be applied by parties. It was held that a valid offer
is the one in which the party who is making such offer have the intention to create a
legally binding relationship with another party.2 This intention can be to do certain
thing, or no do a particular thing. This intention was further elaborated by the court by
providing that after receiving the acceptance, the party who had made the offer must be
bound by the terms. The goods or products which are offered by people in shops are not
considered as a valid offer. They are not considered as an offer because the element of
the intention of the party is missing without which it cannot be constituted as valid as
provided in Fisher v Bell.3 When evaluating the given scenario, it can be seen that the
offer was made by Avinash. He went to the local café and selected the coffee and pastry
options which were available on the self-service system, and he took the receipt to the
cashier to pay for his order. The coffee and pastry options are not offer given by the
café; instead, they are goods on display, and an offer was made when Avinash selected
one of the options and agreed to pay the price.
1 [1893] UKPC 1
2 Tracey Hough and Kathrin Kuhnel-Fitchen, Optimize Contract Law (Routledge, 2017).
3 [1961] 1 QB 394

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Moving forward, an offer itself cannot form an agreement without the availability of
acceptance which is the second element. It is the approval which is given by a party to
form an agreement in order to comply with the terms of the offer.4 There are specific
criteria which must be present without which the acceptance is not considered as valid.
The communication of acceptance is a general rule to consider it as valid; however, the
communication need not be in writing or orally as it can be given by the conduct as held
in Butler Machine Tool v Ex-cell-o Corporation.5 It is only considered as valid when it
exactly matches the terms which are included by the parties in the offer or else it did
not constitute as valid. Lastly, it must be certain in nature rather than ambiguous. In the
given scenario, the offer of Avinash was accepted by the café through conduct rather
than in writing or orally. The act of collecting the money and giving the Danish pastry is
constituted as a valid acceptance.
The presence of these two elements is not enough to create a legally enforceable
contractual relationship since the presence of consideration is necessary. It is a crucial
element which is the bargain that is made between contractual parties because one
party receive a benefit while at the same time another party suffers a detriment. There
are principles which must be present for a valid consideration in the contract such as it
must have a value in the eyes of the law.6 It is also necessary that the consideration must
move from the promisee and the parties have to ensure that it is present or future
because past consideration is not valid. These are the key elements which are necessary
to be present when parties decided to form a contract without which they cannot form a
relationship that allows them to legally enforce one another.7 The promisee in the given
scenario is the café, and the consideration is the pastry which was given to Avinash. Due
to this bargain, it can be established that the element of consideration is present in this
case.
All these elements can be made present; still, parties cannot be enforced to comply with
the terms which they agreed to accept if they did not have valid intention in the first
place to comply with them. Unless the parties forming a contract did not have the
intention to make sure that they bind themselves into the terms, they cannot form any
4 Jill Poole, Textbook on contract law (Oxford University Press, 2016).
5 [1979] 1 WLR 401
6 Thomas v Thomas (1842) 2 QB 851
7 Matthew Stubbins, ‘The gratuitous transfer and Petrodel: reform or no reform?’, (2016) 22 (5) Trusts &
Trustees 516-524.

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legal relationships based on contracts.8 Due to this element, the contracts that are
formed between parties when they are in social or domestic settings are not considered
as valid since these individuals did not want to actually create a legal obligation on one
another which they intend to legally enforce. 9 However, in commercial relationships,
parties have the motive to make sure that they create legally enforceable contracts
which are not violated by another party or else they could suffer a loss. Thus, a contract
is business context is considered as valid because the parties have the intention to
legally bind it upon themselves.10 There is a commercial relationship between Avinash
and the café since he has paid $7.50 in order to receive the pastry due to which both
parties are intended to create a legal relationship. Thus, the presence of this element is
also present; however, it is also essential that the parties have the legal capacity to
create a legal relationship in the first place. Not everyone has the capacity to create a
legal relationship, and there are specific parties who cannot form a legally enforceable
contract which includes insolvent, minor or unsound mind person. Thus, in this
scenario, both Avinash and the café are capable of creating a legal relationship.
Each of these steps highlighted different elements of contracts and their presence in this
scenario due to which it can be concluded that a valid contract is indeed formed
between Avinash and the café.
8 Renata Grossi, ‘Love as a Disadvantage in Law’, (2018) 45 (2) Journal of Law and Society 205-225.
9 Balfour v Balfour [1919] 2 KB 571
10 Edwards v Skyways Ltd [1964] 1 WLR 349

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ANSWER 1 (B)
I: ISSUE
The issue is relating to the liability of the café and whether such liability can be
successfully avoided through the exclusion clause? The second issue is related to the
rights of Avinash as a consumer?
R: RULE
One of the key purposes of creating a legal relationship between parties is that they
have the option to make sure that they enforce each other through legal mediums if they
violate the terms of the contract. However, this obligation can be obliterated or limited
by the contractual parties through exclusion clause. This clause is used by the parties
for the purpose to make sure that they cannot be held liable for breach of the contract
or their negligence.11 Certain rules are necessary to be present to incorporate a valid
exclusion clause. In the case of a written contract, the rule provides that the clause did
not need to be brought into the attention of the parties.12 It is enforceable on them
despite whether they knew that it is included in the contract or not.
However, this is not the case in contracts which are unsigned such as tickets. The
general rule provides that such clause must be brought into the attention and
notification regarding the same should be given to parties.13 It is not considered as valid
until reasonable steps are taken to notify the party regarding the existence of this clause
when the contract is formed or before its formation. Parker v South Eastern Railway14
case is relevant when it comes to determining the liability which arises due to including
of the exclusion clause when it is included in a ticket. In case the person knew about the
clause and its availability in the ticket, then it is enforceable on the parties.
11 Jeffrey F. Fitzpatrick et al., Business and Corporations law (LexisNexis Butterworths, 2017).
12 Tony Blackshield and Rosemary Huisman, ‘Exemption and exegesis: Judicial interpretation of
exemption clauses in England, Australia, and India’, (2016) 2016 (209) Semiotica 77-97.
13 Olley v Marlborough Court [1949] 1 K.B. 532
14 (1877) 2 CPD 416

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The Competition and Consumer Act 2010 (Cth)15 is a federal act that is enacted by the
Australian government with an objective to make sure that the rights of customers are
recognised and protected. The Australian Consumer Law (ACL) makes sure that
businesses did not violate the rights of customers. For example, there is a strict
prohibition on the use of exclusion clause by businesses while forming contract for
goods and services especially when they use them to prohibit or hinder consumer
guarantee as given under section 64. For this purpose, the definition of consumer is
given pursuant to section 3 which provides that a person whose purchase did not
exceed forty thousand in price and its purpose is personal consumer and domestic use,
then he/she is considered as a consumer.16
A: APPLICATION
After making the purchase, it was later found out by Avinash that there is a clause
written behind the ticket that is implemented with an objective to limit the liability of
the parties. Since there is no written contract constructed between parties, the general
rule should be applied in this scenario to evaluate the validity of the term. As per this
rule, the actions which are taken to make sure that customers learn about the clause are
not adequate (Olley v Marlborough Court). Although it was not the first time when
Avinash has visited the café; however, it was the first time when he used the self-service
system in order to place his order due to which he was not aware regarding the clause
which makes it ineffective and it cannot be enforced on him (Parker v South Eastern
Railway). The provisions gave under the ACL also applies to this scenario based on
which Avinash is a customer since he fits the definition given under section 3. Thus, his
rights are protected under this act due to which the clause cannot prohibit his customer
guarantee which is to make sure that he receives a quality product as ordered under
section 64.
C: CONCLUSION
In conclusion, the enforceability of the exclusion clause is not valid since the general
rule is not followed and rights of Avinash as a customer is protected.
15 Competition and Consumer Act 2010 (Cth)
16 Austlii, Meaning of consumer (2019) <
http://classic.austlii.edu.au/au/legis/cth/consol_act/caca2010265/sch2.html#_Toc6928097>.

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ANSWER 2
Terms are referred to the conditions or provisions which are a part of a contract, and
the purpose of these provisions is to impose an obligation on the party. Through this
obligation, the parties of the contract can make sure that they can file a lawsuit to
enforce the terms or receive compensation for the loss suffered by them due to non-
compliance of those terms by another party as a result of a breach of the contract.17
However, no all terms in the contract are expressed by the parties, and there are certain
terms which are peripheral in order to protect the objective of the contract. Basically,
these terms are categorised into express and implied. There are a number of contracts
in which both of them are available and enforceable on the parties.
The terms which are expressed by the parties and specified by them in the contract
through writing or orally are defined as express terms. The court emphasised on the
importance of including written terms into a contract in Buckenara v Hawthorn Football
Club Ltd18 because parties can suffer loss since they find it difficult to prove the
existence of oral terms in a contract. On the opposite side, there are certain terms which
are a part of the contract; however, they are not written or orally agreed upon by the
parties. Without the existence of these terms, the contract itself did not make any
commercial sense which makes it worthless. Usually, the existence of these terms is
identified when a conflict or disagreement arises between the parties of the contract
and they find it difficult to reach a common conclusion as given in British Crane Hire
Corporation Ltd v Ipswich Plant Hire Ltd.19
There are many differences which exist between these terms such as in terms of
incorporation because the express terms are incorporated by parties of the contract by
writing or orally; however, the implied terms are incorporated by statutes or courts.
Another difference is relations to their purpose because the object of the express terms
is to make sure that specific provisions are incorporated in the contract to protect and
compensate the contracting parties from violating or breach of the contractual terms.20
However, the implied terms are used in order to make sense of the commercial nature
17 Richard Stone and James Devenney, The modern law of contract (Routledge, 2017).
18 [1988] VR 39
19 [1973] EWCA Civ 6
20 Janet O’Sullivan, O’Sullivan and Hilliard’s the Law of Contract (Oxford University Press, 2018).

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of the contract and ensure that the parties of the contract did not suffer a detriment due
to a literal interpretation of the contractual terms. Although both of these terms can
become the part of a single contract; however, another difference between them is that
once an express term is included, a similar implied term cannot become a part of the
contract.
In Answer 1, the order given by Avinash for Danish pastry is considered as an express
term since he specified his choice in the contract which cannot be changed. However,
the right to receive good quality pastry is the implied term in the contract which is not
included by written or oral medium; still, it is a part of the contract. This term protects
the rights of the contractual party (Avinash), and it is implied by the statute that is the
ACL.

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BIBLIOGRAPHY
A ARTICLES/BOOKS/REPORTS
Blackshield, Tony and Rosemary Huisman, ‘Exemption and exegesis: Judicial
interpretation of exemption clauses in England, Australia, and India’, (2016) 2016 (209)
Semiotica 77-97.
Fitzpatrick, Jeffrey F., Christopher F. Symes, Angelo Veljanovski and David Parker,
Business and Corporations law (LexisNexis Butterworths, 2017).
Grossi, Renata, ‘Love as a Disadvantage in Law’, (2018) 45 (2) Journal of Law and Society
205-225.
Hough, Tracey and Kathrin Kuhnel-Fitchen, Optimize Contract Law (Routledge, 2017).
O’Sullivan, Janet, O’Sullivan and Hilliard’s the Law of Contract (Oxford University Press,
2018).
Poole, Jill, Textbook on contract law (Oxford University Press, 2016).
Stone, Richard and James Devenney, The modern law of contract (Routledge, 2017).
Stubbins, Matthew, ‘The gratuitous transfer and Petrodel: reform or no reform?’, (2016)
22 (5) Trusts & Trustees 516-524.
B CASES
Balfour v Balfour [1919] 2 KB 571
British Crane Hire Corporation Ltd v Ipswich Plant Hire Ltd [1973] EWCA Civ 6
Buckenara v Hawthorn Football Club Ltd [1988] VR 39
Butler Machine Tool v Ex-cell-o Corporation [1979] 1 WLR 401
Edwards v Skyways Ltd [1964] 1 WLR 349
Fisher v Bell [1961] 1 QB 394

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Harvey v Facey [1893] UKPC 1
Olley v Marlborough Court [1949] 1 K.B. 532
Parker v South Eastern Railway (1877) 2 CPD 416
Thomas v Thomas (1842) 2 QB 851
C LEGISLATION
Competition and Consumer Act 2010 (Cth)
D OTHERS
Austlii, Meaning of consumer (2019) <
http://classic.austlii.edu.au/au/legis/cth/consol_act/caca2010265/
sch2.html#_Toc6928097>.