Formation of a Valid Contract and Exclusion Clause in Business Law

This article discusses the formation of a valid contract and exclusion clause in business law. It covers the essential elements of a contract, including offer, acceptance, capacity, legality, intention, and consideration. It also explains the rule of exclusion clause and its validity. The article provides relevant case laws and legislation to support the discussion.

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Business Law

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Part A
Issue
Whether a valid contract has formed between Rachel and ChunkyChicken by fulfilling all the
essential elements of the contract?
Law
A contract is referred to a legal agreement which his formed between two or more parties.
This agreement gives them the right to enforce the contractual terms on each other. The
terms of the contracts bind its parties, and they have to comply with its terms. However,
this right is available only in case a valid contract is formed between the parties. A valid
contract is formed when its parties fulfil all the essential elements of the contract. These
elements include offer, acceptance, capacity, legality, intention and consideration.1 Firstly,
an offer is made to form a contract which is referred to a proposal or proposition which
gives rise to an agreement between parties after receiving acceptance. It can be expressed
or implied, and it must be clear and unambiguous. An offer can be revoked by a party at any
time before its acceptance unless it is supported by consideration as given in the case of
Goldsborough Mort & Co Ltd v Quinn2.
Moreover, it is important that parties must differentiate between offer and an invitation to
treat. Certain examples of invitation to treat include broacher, advertisement and display of
goods for sale. In Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern)
Ltd3 case, it was held by the court that goods which are displayed on shelf for the sale of
customers are not considered as a valid offer instead it is considered as an invitation to
treat.4 A valid acceptance is another key element of the contract which is referred to clear
and undoubted assent to the offer to comply with all of its terms. Certain rules must be
fulfilled in order to constitute acceptance as valid. It must be clear and undoubted and must
be communicated. It must be given with appropriate knowledge, and the party must use
correct method while communicating acceptance.
1 David Parker and Gerald Box, Business law for business students (Lawbook Co., 2013).
2 (1910) 10 CLR 674
3 [1952] 2 QB 795
4 Andrew Burrows, A casebook on contract (Bloomsbury Publishing, 2013).

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The acceptance must be free from any condition, and it must be given for all the terms of
the offer in order to constitute as valid as given in Hyde v Wrench5 case. Consideration is
another key element of a valid contract. It is referred to the price for which the promise of
another party is brought which makes the contract legally enforceable. It is the bargain of
the contract in which one party’s gain is another party’s detriment. Consideration must be
present in all simple contracts, and it must not be vague or illusionary as given in White v
Bluett6 case.7 The consideration must be sufficient in the eyes of the law as given in the case
of Hercules Motors Pty Ltd v Schubert8.
Application
In the given scenario, ChunkyChicken has implemented a self-service facility for its
customers where they can select what they want to order by clicking on the image or icon of
the product. The display of these products are not a valid offer, instead, they are invitation
to treat. As discussed in Pharmaceutical Society of Great Britain v Boots Cash Chemists
(Southern) Ltd case, the items which are displayed by the show on the shelf are not
considered as available for sale. Similarly, showing the items of the display is not a valid
offer; instead, it is an invitation to treat. The customers who wanted to purchase something
can make an offer by clicking on the screen to place their order. Rachel made an offer to
purchase the new gourmet chunkier chicken burger and hand cut chips in the screen, and
this offer was accepted by ChunkyChicken when a printed ticket was issued immediately in
which an order number and price is given which matched the terms of the offer made by
Rachel (Hyde v Wrench).
However, a valid contract has not formed between the parties at the movement because
the element of consideration is missing which is a key element to form a valid contract. The
consideration is paid by Rachael to the cashier when she paid $17.50 for the burger. The
consideration paid by her was not vague or illusionary, and it was sufficient for the product
purchased by Rachel, hence, it was a valid consideration (White v Bluett). The consideration
paid by Rachel for the burger was sufficient in the eyes of the law (Hercules Motors Pty Ltd v
Schubert). Thus, a contract is formed between Rachel and ChunkyChicken when a payment
5 (1840) 49 ER 132
6 (1853) 23 LJ 23 Ex
7 Chris Monaghan and Nicola Monaghan, Beginning Contract Law (Routledge, 2013).
8 (1953) 53 SR (NSW) 301

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of $17.50 was made by Rachel to the cashier after which all the necessary elements which
are necessary to form a contract were present.
Conclusion
Based on the above analysis, it can be concluded that a valid contract has formed between
Rachel and ChunkyChicken because all the essential elements of a contract were present.

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Part B
Issue
Whether ChunkyChicken can rely on the clause included in the electronic terms and
conditions in order to avoid liability towards Rachael?
Law
The terms which are included in a valid contract are enforceable on its parties. It means that
the victim party can enforce the contractual terms on another contractual party if they are
not complying with such terms. In case the contractual terms are not fulfilled by the party,
then the aggrieved party has the right to hold the breaching party liable for such violation.
The victim has the option to enforce the terms on another party or demand damages for the
loss suffered by the aggrieved party. However, this liability can be eliminated by the party by
including an exclusion clause in the contract. The exclusion clause or unfair term is referred
to a contractual term that seeks to either completely eliminate or limit the liability of a party
which arise based on the breach of the contract.9 As per the rule of exclusion clause, if a
party signs a contract, then they are bound by all of its terms. This rule was given in
L’Estrange v Graucob Ltd10 case which applies whether or not the party has read or
understood the term or not which is known as the signature rule. In the case of unsigned
documents, the court relies on two tests to determine whether an exclusion clause is valid
to ensure that it did not violate the right of customers.
The first test is nature of the document which is an objective test which evaluates whether a
reasonable person would expect the contract to contain such term as given in Chapelton v
Barry Urban District Council11 case. The reasonable notice test provided that the party must
take reasonable steps to bind the clause into the notice of the customer while the contract
is being formed as given in case.12 Thus, clause hidden on the back of pillar in the car parking
is not considered as valid in the case of Thornton v Shoe Lane Parking Co13. The Competition
9 Ewan McKendrick and Qiao Liu, Contract Law: Australian Edition (Macmillan International Higher Education,
2015).
10 (1934) 2 KB 394
11 [1940] 1 KB 532
12 Carron Ann Russell, Opinion in Contract Law (Routledge, 2012).
13 [1971] 4 CLR 379

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and Consumer Act 201014 gives the definition of a consumer under section 3. Section 3 (1)
provided that a consumer is referred to such person who purchases any good for personal,
domestic or household consumption and the payment about did not exceed $40,000.
Section 24 of the act defines unfair as a term which causes imbalance between contractual
parties’ rights and obligations and it did not protect their legitimate interest. Section 26
provides that unfair terms in consumer contracts are considered ineffective.15
Rule
In the given scenario, the electronic terms and conditions contained the exclusion clause
based on which ChunkyChicken wanted to eliminate its liability towards Rachael. The
contract formed between parties was an unsigned document, thus, the validity of the term
can be determined by two tests. Based on the first test, it was not reasonable to include
such term in the contract because it violates customers’ rights (Chapelton v Barry Urban
District Council). Based on second test, reasonable steps were not taken by ChunkyChicken
to bring the term into the attention of Rachael. It was also not included when the contract
was formed between the parties which were at the time when Rachael paid for the food
(Thornton v Shoe Lane Parking Co). Moreover, Rachael is a consumer as per the definition
given under section 3 of the Australian Consumer Law. Thus, the term included by
ChunkyChicken which violates her right is considered as ineffective as per the provision gave
under section 26 of the act.
Conclusion
In conclusion, ChunkyChicken cannot rely on the defence of the exclusion clause because it
was not valid and Rachael has right under the Australian Consumer Law to receive
compensation from ChunkyChicken.
14 Competition and Consumer Act 2010 (Cth)
15 Austlii, Competition and Consumer Act 2010 (2018) <
http://classic.austlii.edu.au/au/legis/cth/consol_act/caca2010265/toc-sch2.html>.

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Bibliography
A Articles/Books/Reports
Burrows, Andrew, A casebook on contract (Bloomsbury Publishing, 2013).
McKendrick, Ewan and Liu, Qiao, Contract Law: Australian Edition (Macmillan International
Higher Education, 2015).
Monaghan, Chris and Monaghan, Nicola, Beginning Contract Law (Routledge, 2013).
Parker, David and Box, Gerald, Business law for business students (Lawbook Co., 2013).
Russell, Carron Ann, Opinion in Contract Law (Routledge, 2012).
B Cases
Chapelton v Barry Urban District Council [1940] 1 KB 532
Goldsborough Mort & Co Ltd v Quinn (1910) 10 CLR 674
Hercules Motors Pty Ltd v Schubert (1953) 53 SR (NSW) 301
Hyde v Wrench (1840) 49 ER 132
L’Estrange v Graucob Ltd (1934) 2 KB 394
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1952] 2 QB
795
Thornton v Shoe Lane Parking Co [1971] 4 CLR 379
White v Bluett (1853) 23 LJ 23 Ex
C Legislation
Competition and Consumer Act 2010 (Cth)
D Others

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Austlii, Competition and Consumer Act 2010 (2018) <
http://classic.austlii.edu.au/au/legis/cth/consol_act/caca2010265/toc-sch2.html>.