Victoria University Business Law Assignment: Contractual Issues

This assignment analyzes a business law scenario involving a dry cleaning contract between John and Span and Spic. Part A examines the formation of the contract, including offer, acceptance, certainty of terms, consideration, and intention to create a legal relationship, concluding that a valid contract exists. Part B focuses on an exclusion clause printed on the back of the receipt, exploring its validity under common law and Australian Consumer Law. The analysis considers whether Span and Spic can rely on the clause to avoid liability for damage to John's suit, considering the communication of the clause and the application of consumer guarantees regarding acceptable care and diligence. The assignment explores the legal principles and their application to determine the enforceability of the exclusion clause and the potential liability of the dry cleaner.

BUSINESS LAW

Contents
Part A.........................................................................................................................................2
Issue:......................................................................................................................................2
Rules:.....................................................................................................................................2
Application:..........................................................................................................................3
Conclusion:...........................................................................................................................4
Part B..........................................................................................................................................4
Issue:......................................................................................................................................4
Rules:.....................................................................................................................................4
Application:..........................................................................................................................5
Conclusion:...........................................................................................................................6
References..................................................................................................................................7

Part A
Issue: The key issue is to evaluate each of the steps involved between the parties John and
Span and Spic that led to the contract of dry cleaning of suit between the two. Hence, the
discussions would involve the review of each of the steps in the light of the legal contractual
agreement.
Rules: The legal rules are comprised in the Australian Contract Law that is the prime
governing legislation regarding the formation, management and the execution of the
contracts. The legislation states that the essential conditions must be fulfilled for an
agreement to be regarded as enforceable in the courts, in the form of a valid contract. In
context of Australia, there are five key conditions that must be complied by the parties
intending to form a contract (Latimer 2016). A detailed elaboration of the conditions along
with the applicable case laws is indicated as follows.
Offer and Acceptance
The very first condition is related to the offer and acceptance. The condition is fulfilled when
one of the parties intending to form a contract extends an offer to the other party, and the
same is accepted by the other party in the absolute form. By offer it is understood that one
party describes its intentions in the form of a proposal for something to be done, or not to be
done. It does not matter whether the said communication is in the oral or written form, but
what matters is the terms of the contract are clearly stated in the offer, to be understood by
the parties as they are. The offer when accepted becomes an agreement between the parties.
The acceptance must be in absolute form. When the other party puts an additional condition,
in response to an offer, it is known as a counter offer and not an acceptance. The significance
of offer and acceptance has been stated in the different case laws, including the Empirnall
Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527, in which it is
stated that both the offer and acceptance must be duly communicated.
Certainty of terms
In addition, the terms of the contract must be certain for both the parties to be understood in a
similar manner. The terms of the contract is defined as the description of the obligation of the
parties, that an act to be done or not to be done. While, some terms of the contracts are
expressed and some of the contractual terms are implied. It is essential for the meeting of the
minds of the parties to the contract. Thus, the terms must be certain in all respects.

Consideration
The next condition is that the agreement must involve a certain consideration, not necessarily
in the form of money, but should be of some value as was held in the case of Beaton v
McDivitt (1987) 13 NSWLR 162. It denotes a payment in exchange of the promise, and must
be mandatorily present unless specifies for certain exceptional contracts in the common law.
Thus two key conditions to be noted are that of the “price” and the “promise.” The principle
of existence of consideration has been well pronounced in various cases globally such as the
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130.
Intention to create legal relationship
This is followed by the condition of the intention of the parties to enter into a legal
relationship. Usually the presence of the consideration is indicative of the legal relationships
between the parties. It must be noted that the intention to create legal relationships is an
independent requirement and the evidence must be present for each party to the contract. The
requirement was pronounced in the leading case of Air Great Lakes Pty Ltd v KS Easter
(Holdings) Pty Ltd [1989] 2 NSWLR 309.
Contractual capability
Apart from the above listed, the parties must be legally capable to enter into the contractual
relationship. The Contract Law defines the legal capacity to enter into the contract and
prescribes a list of the person that are barred to enter in a contractual relationship. These are
minors, companies, bankrupts, intoxicated individuals and the ones that are suffering from
any kind of mental disorder. The legal capacity has time and again been described in the
varied cases laws like Blomley v Ryan (1954) 99 CLR 362, Gibbons v Wright (1954) 91 CLR
423, and others.
Thus, each of the above conditions must be satisfied by the each of the parties to a contract,
for an agreement to be regarded as a validly enforceable contract in the courts of law.
Application: The application of the above legal principles is stated in the following
segment. It is to be noted that John goes to this local dry cleaning shop Span and Spic, with
an aim to get the suit dry cleaned for an important business meeting. The display board in the
shop sets out various prices and services, and this is to state that it is an invitation to treat. As
John selects the premium cleaning option, he extends an offer to the dry cleaning shop
assistant. Thus, there exists an offer in the above mentioned scenario. As John enquires about

the suitability of the premium cleaning option in context of the fabric and the expensiveness
of the suit, he has been informed that the finest quality of machines and materials are used by
the shop, and that the same would not result any harm to the material of the suit. Thus, on
being satisfied upon the suitability of the materials and machines, John decides to get the suit
dry cleaned. Thus, as John is issued with a receipt number and the customer number, it has
resulted in the acceptance of the offer by the dry cleaners Span and Spic.
Apart from the above, the terms of the agreement can be stated to be certain with the
obligations of the Span and Spic being clearly defined to be providing the premium dry
cleaning services, as chosen by the client. In addition to the above, it is to be noted that there
is a consideration existing in the above agreement in the form of the prices to be paid in
exchange of the dry cleaning of the suit that is to be paid on the collection of the suit. It is to
state that as per the principle of the case law Beaton v McDivitt, the consideration can be in
the future as well, and not necessarily be paid at the time of the creation of the contract. In
addition to the offer, acceptance, certainty of the terms, and the presence of the consideration;
there is a legal intention of the parties to be associated. This is because the commercial
contracts are valid legal contracts, in the eyes of the law. Further to state, the both parties to
the contract are legally capable to be associated with each other for the contract with each
other. Thus, all the essential conditions are complied with by the parties to the contract.
Conclusion: The discussions of the case scenario, the issue therein and the applicable legal
principles in conjunction with each other lead to the conclusion that the each of the condition
of the valid contract creation is fulfilled by the parties. There exists an offer as extended by
John, the same is accepted by Span and Spic. The parties intend legally to be associated with
each other, and the support of the consideration further makes the above agreement a valid
contract that can be enforced in the courts of law. It can be concluded that there exists a valid
contract between John and Span and Spic.
Part B
Issue: The issue in this scenario is to analyse whether there is a legal entitlement on the part
of Span and Spic, to rely on the clause that has been provided on the back of the receipt
issued to John by them. Thus it would be analysed whether the liability sustained on the
causation of the damage to the John suit be avoided.

Rules: The legal rules relating to the above issue are contained both in the Common Law as
well as the Consumer Law. It is important to note that it is a well renowned practice
employed by the organisations to limit or exclude their liability by printing the same on the
bills or the receipts, and the same is called as the “Exclusion Clause.” The act of mentioning
the exclusion clause leads to the obligation of the contract become conditional. It would not
be wrong to state that often, unfair means are adopted by the parties to avoid liability, by
using the above principle. Thus, validity of the above kind of exclusion clause is limited to
their legally viability.
It is a prime necessity to communicate the mentioning of the exclusion clause at the time of
the initiation of the contracts. The case law of Thompson v LMS Railway [1930] 1 KB 41
must be noted here. In the specified case, it was manifested by the court that it is mandatory
to notify the exclusion clause by the party mentioning it when the contracts are formed itself,
to the other party to the contract.
When the agreements are written and duly signed by the parties, the signature itself legalises
the existence of the exclusion clause (Stickley 2016). In opposition to this, when the
agreements are verbal and not signed it is compulsory for the existence of reasonable
sufficiency so as the parties believe that the exclusion clause existed. Further, it is significant
to state that the party must be rationally aware of the outcomes of the inclusion of the above-
mentioned clause. Thus, the exclusion clause would not be regarded as valid, if one of the
parties to the contract is not aware of the probable outcomes of such enclosure. Thus, it is
important that the clause is validly incorporated in the contract for its legal enforcement as
was held in the Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500.
Australian Consumer Law is one significant law governing the commercial contracts in
context of Australia. One of the significant legal principle included therein is that of the
statutory guarantees as enclosed in the section 64 of the act (Legal Services Commission
2020). As per the said section, it would be regarded as void if the clause is meant to limit any
benefit to the consumer under the statutory guarantees as mentioned under this act. Further,
the section Section 64A (3) additionally specifies of the reasonableness test relating to the
mentioning of the clause, and the manufacture or the supplier is entrusted with the onus of
‘reasonableness’ being proved. One of the consumer guarantees as stated in the act states that
the provision of the services must be done with acceptable care and diligence, and all the
necessary steps must be taken for the avoidance of the losses or the damages (Australian

Competition and Consumer Commission 2020). In addition, it has been stated in the law that
the services must be provided in a manner such that the purpose for which they were asked
for is fulfilled, as was initially agreed by the parties.
Application: The application of the above mentioned legal principles to the given case leads
to the below mentioned points. It is to be noted that as the suit is issue to John post dry
cleaning, the left side of the same has been damaged. In response to this, as John asks for the
compensation, he has been refused on the grounds that the exclusion clause has been printed
at the back of the receipt stating that the organisation would not be responsible for the
damages caused to the garments.
The printing of the exclusion clause is done on the backside of the receipt. It can be stated
that there exists no sufficient reasons for the clients of to believe about the existence of such
an exclusion clause, because of the very fact that a person would want the clothes in better
condition than given and not damaged. It is also because of the existence of the implied
condition that the dry cleaned clothes must be fit to be used and free from damages. Hence,
the implied condition has been breached of the common law.
In context of the Australian Consumer Law principles, the above-mentioned clause creates a
limit on the consumer rights as mentioned in the statutory guarantees elaborated in the section
64 of the act. On the application of the principles of the consumer guarantees in relation to
the services, it must be noted that it is the duty of the dry cleaners to ensure that the clothes
returned are free from the damages. The exclusion clause limits such right as stated above, as
consumer guarantee has been breached.
Conclusion: The discussions conducted in the above segments, which involved the
elaboration of the issue, legal principles of the exclusion clause as specified in the common
law and the Australian Consumer Law, it can be concluded that the mentioned exclusion
clause is invalid under both the legislations. This is because of the violation of the implied
condition as well as the statutory consumer guarantee.
Thus, on the basis of the principles of Darlington Futures Ltd v Delco Australia Pty Ltd, it
can be concluded that as the exclusion clause is not valid and thus cannot be stated to be well
incorporated in the contract. Thus, Span and Spic cannot rely on the said exclusion clause for
the limitation of the liability.

References
Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309
Australian Competition and Consumer Commission 2020, Consumer guarantees, Australian
Competition and Consumer Commission, viewed 31 January 2020,
<https://www.accc.gov.au/consumers/consumer-rights-guarantees/consumer-guarantees>.
Beaton v McDivitt (1987) 13 NSWLR 162
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130
Blomley v Ryan (1954) 99 CLR 362
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500.
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 527
Gibbons v Wright (1954) 91 CLR 423
Latimer, P 2016, Australian Business Law 2016, CCH Australia Limited, Australia.
Legal Services Commission 2020, Exclusion Clauses, Legal Services Commission, viewed
31 January 2020, < https://lawhandbook.sa.gov.au/ch05s09s09.php>.
Stickley, A P 2016, Australian torts law, LexisNexis Butterworths, Australia.
Thompson v LMS Railway [1930] 1 KB 41