Commercial Law Assignment: Contract and Damages Analysis

This assignment delves into several key aspects of Australian commercial law, analyzing scenarios related to contract formation, breach, and remedies. Part A examines an advertisement's classification as an offer versus an invitation to treat, and the implications of a standing offer. Part B explores the validity of offer revocation after acceptance. Part C assesses the damages Heidi can claim for a faulty coffee machine, considering compensatory losses, the principle of placing the innocent party in the position they would have been in absence of breach, and the requirement for foreseeable losses. The assignment references relevant case law, including Partridge v. Crittenden, Carlill v. Carbolic Smoke Balls Company, Routledge v. Grant, Payne v. Cave, Byrne & Co v Leon Van Tien Hoven & Co, Robinson v Harman, Tabcorp Holdings Ltd v Bowen Investments Pty Ltd, and Hadley v Baxendale, to support its legal arguments and conclusions. The assignment provides detailed analysis of the issues at hand, and provides a comprehensive overview of the legal principles involved.

AUSTRALIAN COMMERCIAL LAW
STUDENT ID:

PART A
Question 1
Issue
In context of the advertisement released by Machine Express Pty Ltd for its product NewBean
Coffee machine, the core legal issue is to ascertain if this advertisement would be an offer on
only an invitation to treat.
Law
It is of utmost importance to differentiate a invitation to treat from a offer as acceptance would
lead to formation of an enforceable contract only in the case of latter and not the former. An
invitation to treat is essentially a promotional tool whereby the seller wants to solicit the bids of
interested buyers based on which contractual relationship may arise. With regards to
advertisement, the general understanding is that these are invitations to treat but not offer1. A key
legal precedent endorsing the above interpretation is Partridge v Crittenden2case. As per the
relevant facts, the defendant placed an advertisement for the sale of certain protected birds and
hence was convicted for being in breach of the underlying statute owing to involvement in sale.
However, the defendant argued that the advertisement merely constituted an invitation to treat
and not an offer for sale. This viewpoint was endorsed by the court which also classified the
advertisement as an invitation to treat and not an offer3.
However, it is noteworthy that an advertisement can also be considered as an offer which is
apparent from the verdict of Carlill v Carbolic Smoke Balls Company4.case. In this case, an
advertisement was put by company where it claimed that any person who would consume the
carbolic balls produced by the company in the prescribed manner would not get infected with
influenza and if that did get infected, then the company would pay £100. The company also
highlighted that it had deposited a £1,000 amount in the bank. In this case, it was indicated that
1 Shayne Davenport, Business and Law in Australia (Thomson Reuters, 4th ed, 2014) 165
2 Partridge v Crittenden [1968] 1 WLR 1204
3 Andy Gibson & Douglas Fraser, Business Law (Pearson Publications., 8th ed, 2014) 152
4 Carlill v Carbolic Smoke Balls Company [1893] 1QB 256.

the advertisement was quite detailed and covered every aspect including the method of taking the
carbolic smoke balls. As a result, the advertisement was termed as an offer5.
Application
In the given case, an advertisement has been put up by Machine Express Pty Ltd with regards to
promotion of NewBean Coffee Machine. The advertisement focused on two main aspects
namely that the machine is available with the company and also the same is being sold at half
price. Clearly, the exact price is not highlighted in the advertisement. The objective of the
advertisement is to solicit interest from willing buyers who might like to purchase the underlying
coffee machine. Considering the verdict in Partridge v Crittenden case and the relevant facts of
the given scenario, it is apparent that the advertisement would constitute only an invitation to
treat. As a result, the company can potentially deny selling the machine to an interested buyer as
the buyer would be making an offer and not communicating acceptance.
Conclusion
The discussion carried in the previous section clearly highlights that the advertisement which the
company has put for the promotion of the coffee machine would be categorized as invitation to
treat and not an offer.
Question 2
Issue
Considering the standing offer given by the manager of Machine Express Pty Ltd in relation to
coffee machine sale, the key objective is to determine whether an enforceable contract was
enacted thereby leading to breach of contract since the manager sold the coffee machine to
another customer.
Law
5 Wayne Pendleton & Roger Vickery, , Australian business law: principles and applications, (Pearson
Publications, 5th ed., 2015) 109

In the enactment of a valid contract, one of the key elements is valid agreement. This process is
initiated with the offer being directed to the offeree by the offeror. The offeree may provide
unconditional acceptance to the offer or can reject the offer. It is imperative that acceptance
needs to be take place before the offer is revoked6. There are some cases when acceptance may
not be given instantaneously and may take time owing to various factors to be considered by the
offeree. In such cases, the offeror may highlight a particular time limit within which the offer is
open. In such a scenario, it needs to be discussed if during the period when offer is open, can the
offeror enact a contract with another offeree or not without taking permission from the original
offeree7.
A case which merits discussion in the wake of the above issue is Routledge v Grant8. As per this
case, the offeror made an offer with regards to lease on a property and decided to not revoke the
offer for a period of six months. This was communicated to the offeree. Meanwhile, the property
was given on lease to another offeree pending acceptance from the original offeree. The original
offeree came back with his acceptance before six months but after the property was leased to a
different party. The court highlighted that there was no violation by the offeror in engaging with
another offeree. Infact, Best CJ indicated that if one party is not bound to the contract, then it is
unreasonable for the other to be bound9.
Application
As per the given facts, the manager at Machine Express Pty Ltd intends to sell a floor stock
machine at reasonable discount to Heidi. However, since the model on offer is different from the
one Heidi originally intended, hence she is not sure if the model offered would be able to fit in at
the desired place in her shop. Therefore, she requests that she would need to ascertain if the
machine would be a fit for her place or not. To this request, the manager indicated that his offer
was valid for the whole day. Heidi goes back to her place and finds that the proposed coffee
model would be a perfect fit. However, by the time she returns to provide acceptance for the
offer, the coffee machine offered to her had been already sold. In this case, Heidi cannot sue the
6 Ibid. 1, 134
7 Robert Bryan Vermeesch and Kevin Edmund Lindgren, Business Law of Australia (Butterworths, 2013, 12th edition) 167
8 Routledge v Grant [1828] 4 Bing 653
9 Ibid. 5, 123

manager for breach of contract. This is because since Heidi had no legal obligation to buy the
machine, similarly manager had no legal obligation to sell the machine to Heidi only.
Conclusion
The discussion in the previous section clearly indicates that an enforceable contract has not been
entered between the manager and Heidi. As a result,no legal obligation arises for the manager to
either inform Heidi before selling to other customer or wait for her response on the offer.
PART B
Issue
Considering that Gertrude intends to revoke her offer after the same has been agreed by Heidi,
the key legal issue is whether both these parties have entered into a legally binding for sale of the
retired coffee machine.
Law
In order to form a legally binding contract, an essential element that ought to be present is
agreement. Agreement has essentially two components namely an offer and an acceptance. An
offer is given by an offeror which can be directed towards an individual or party known as
offeree. An offeree can potentially accept the offer or reject it. In case of acceptance of the offer,
an enforceable agreement is enacted which in the presence of other vital elements such as
consideration, intention, ability would lead to binding contract10.
As a result, offer cannot be revoked after acceptance. A leading case in this regards is Payne v
Cave11. This case highlighted how bids before acceptance may be withdrawn in an auction
setting but after they have been accepted, the revocation of these is not possible. Another
relevant case law is Byrne & Co v Leon Van Tien Hoven & Co12 which relates to revocation of
offer in a setting where postal medium of communication is involved. In both these cases, the
verdict and relevant discusses indicates failure to revoke offer post acceptance.
10 Clive Turner & John Trone, Australian Commercial Law, (Thomas Reuters, 32nd ed., 2019) 171
11 Payne v Cave (1789) 3 TR 148
12 Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344

Application
The case facts indicate that Gertrude has offered Heidi a retiring coffee machine for a definite
price or consideration. The offer becomes valid when it is communicated to Heidi. She
immediately agrees to the offer without any conditions and communicates the same to the store
manager Gertrude. Further, there is mutual agreement on the fact that Heidi would pay the
agreed price the next week. However, by next week the store manager wants to revoke the offer
which is not legally permissible considering that an enforceable contract had already been
enacted between them. As a result, failure to sell the retiring coffee machine by Gertrude would
lead to breach of contract.
Conclusion
It is evident that an enforceable contract has been enacted between Heidi and Gertrude. As a
result, if Gertrude refuses to sell the machine, then the contract may be breached.
PART C
Issue
Considering the faulty machine that has been sold by Coffee Supplies Fast Pty Ltd to Heidi, the
main legal issue is to highlight the extent of damages which Heidi can claim from the defaulting
party.
Rule
For breach of contract, one of the pivotal remedies which is available is in the form of damages
which can be sub-divided into two categories namely compensatory losses and punitive
losses13.The compensatory losses are provided in response to the losses suffered by the innocent
party so as to compensate some of the losses. However, punitive losses are used as a deterrent to
ensure that in future the defaulting party does not repeat such a conduct.
13 Ibid. 7. 136

Compensatory damages can be provided by court only when the innocent party has actually
suffered losses. In order to determine the quantum of losses various approaches may be used by
the honorable court. A particular approach indicated in Robinson v Harman14 case aims to place
the innocent party in a similar position to that which would have resulted in the absence of
breach15. Besides, as indicated in the Tabcorp Holdings Ltd v Bowen Investments Pty Ltd16 case,
expectation difference approach may also be used to outline the losses by considering the
expected value that would have been achieved if breach did not happen17. Compensatory
damages need to be directly attributed to the breach of contract so that damages may be available
for the same. A key condition to be fulfilled in terms of claiming damages is that only those
losses which both contracting parties could foresee at the time of executing the contract as has
been highlighted through the verdict of Hadley v Baxendale18 case19. Also, it is imperative that
reasonable steps ought to be taken by the innocent party in order to contain the damage.
Application
There is no denying the fact that breach of contract has been enacted considering that faulty
machine has been provided by the supplier (Coffee Supplies Fast Pty Ltd). As actual losses have
been suffered by Heidi in terms of profits foregone due to shutting down of the business for a
week , hence compensatory losses would be provided in lieu of the profits lost. If the machine
had been fit to use, then Heidi would have been opening her shop for a week which would have
led to sizable profits considering the positive response received. Further, Heidi did take the
reasonable step of contacting another supplier in order to procure the machine.
Also, it is evident that Heidi has also lost an investor who saw the shop shut down on the third
day and hence demanded his money back. Clearly, such a loss was not foreseeable by Heidi and
the coffee machine supplier when they executed the contract for the supply of the coffee machine
and thereby this is not actionable loss. As a result, Heidi cannot expect any compensatory
damages payment on this count.
14 Robinson v Harman (1848) 1 Ex 850
15 Ibid. 3, 123
16 Tabcorp Holdings Ltd v Bowen Investments Pty Ltd [2009] HCA 8
17 Ibid. 10, 167
18 Hadley v Baxendale [1854] EWHC J70
19 Athule Pathinayake , Commercial and Corporations Law, (Thomson-Reuters, 2nd ed., 2014) 134

Conclusion
Based on the discussion above, it is clear that Heidi is entitled to compensatory damages for the
loss of profits owing to the faulty machine and the impact it has on the business as this is
foreseeable. However, the same cannot be concluded about the loss of investor which would
draw any compensation from the supplier.
Bibliography
Andy Gibson & Douglas Fraser, Business Law (Pearson Publications., 8th ed, 2014)

Athule Pathinayake , Commercial and Corporations Law, (Thomson-Reuters, 2nd ed., 2014)
Clive Turner & John Trone, Australian Commercial Law, (Thomas Reuters, 32nd ed., 2019)
Robert Bryan Vermeesch and Kevin Edmund Lindgren, Business Law of Australia (Butterworths,
12th ed.2014)
Shayne Davenport, Business and Law in Australia (Thomson Reuters, 4th ed, 2014)
Wayne Pendleton & Roger Vickery, , Australian business law: principles and applications,
(Pearson Publications, 5th ed., 2015)