Business Law: Contract Formation, Consumer Rights, and Negligence

This report provides a comprehensive analysis of key business law principles, focusing on contract formation, consumer rights, and negligence within the context of a restaurant scenario. The report begins by outlining the essential elements of a valid contract: offer, acceptance, consideration, intention to create legal relations, and capacity to contract, applying these elements to the interaction between a customer and a restaurant. The report then addresses the customer's rights under common law and consumer protection legislation, specifically the Australian Consumer Law (ACL), examining the implications of negligence and exclusion clauses. It references landmark cases such as Donoghue v Stevenson and explores the application of ACL sections regarding consumer guarantees and the validity of exclusion clauses. The report concludes with a discussion on the incorporation of express and implied terms in a contract, referencing the Moorcock case to highlight the court's approach to implied terms.

Running Head: BUSINESS LAW
Business Law
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Author Note

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Table of Contents
Answer 1..........................................................................................................................................2
A..................................................................................................................................................2
B...................................................................................................................................................5
Answer 2..........................................................................................................................................9
Bibliography..................................................................................................................................12

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Answer 1
A
The formation of a contract depends upon the presence of its five essential elements. The
elements are namely offer, acceptance, consideration, intention of creating legal relationship and
capacity to contract.
This section of the paper describes the elements of contract and conducts step by step analyzes
for the purpose of determining the legal significance of each situation which takes place in the
restaurant as to when the contract has actually been formed between the consumers and
restaurant.
Offer
An offer is a sentence, phrase, statement or verbal expression which has been made by a person
towards entering into a transaction with another person. The terms which the offer contains bind
any person who accepts the terms in a legal obligation to the person who has made the offer. The
expression can be considered as an offer if it is reasonably sufficient for the other party to know
that there is intention of establishing a legal relationship on the part of the person making the
offer. The offer has to be sufficiently clear, for instance an offer for sale of goods should contain
place of deliver, quality, and quantity and price of goods and the way in which payment is to be
made.
An advertisement or goods displayed in the shop for sale is not an offer. The provisions have
been discussed by the cases of Partridge v Crittenden [1968] 1 WLR1 and Pharmaceutical
1 Partridge v Crittenden [1968] 1 WLR

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Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 4012 respectively.
This is because if advertisements and goods displaced for sales are considered as offers they
would have a binding effect in relation to every person who has the intention of accepting the
offer. The situation would not be practical as the person making the offer may not have the
resources available to supply the goods to every person who has accepted the offer.
Acceptance
The primary element of acceptance is that it can only be made by a person who has knowledge
about the existence of the offer as provided through the case of R v Clarke HCA 47, (1927) 40
CLR 2273. Further as provided in the case of Hyde v Wrench4 the acceptance has to be absolute
signifying that it must comply with the terms of the offer word to words. Where such
compliance is not ensured the acceptance is called a counter offer. In addition the acceptance has
to be notified to the person who has made the offer as ruled in the case of - Entorres v Miles Far
East [1955] 2 QB 3275 unless the offer is an unilateral offer as was the case in Carlill v
Carbolic Smoke Ball6.
Consideration
Offer and acceptance are based on consideration. In a contract every party receives a benefit and
gives away a benefit. This benefit, promise of act or omission or price provided by the parties
under the contract is known as a consideration. A consideration needs to be present in a contract
for it to be valid as stated by the obiter dicta in the case of Chappell v Nestle [1960] AC 877.
2 Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401
3 R v Clarke HCA 47, (1927) 40 CLR 227
4[1840] EWHC Ch J90
5 [1955] 2 QB 327
6[1893] 1 QB 256
7 Chappell v Nestle [1960] AC 87.

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Intention to create legal relationship when the parties to the contract are into a commercial
agreement the court presumes that both the parties to the agreement intended to from a legally
binding contract according to the ratio decidendi of Edwards v Skyways Ltd [1964] 1 WLR 3498.
On the other hand where the parties are in a domestic relationship such as brother and sister or
husband and wife the court presumes the lack of intention. However, such presumption is always
open to be rebutted according to the case of Balfour v Balfour [1919] 2 KB 5719.
The menu of the restaurant is in form of touch screen located near the table. In order to choose a
product the customer needs press the ok button. Through the application of the case of Partridge
v Crittenden it can be stated that this situation is an invitation to offer. This is because if
everyone at the table selects the same item and the restaurant has limited resources it would not
be able to provide such items to those selecting it.
The print out which is generated is also not an offer because every person who selects the ok
button would be provided with the print out. Thus it is also an invitation to offer.
It is actually when the consumer takes the print out to the desk that he makes a valid offer as it
was in the case of Pharmaceutical Society of Great Britain v Boots Cash Chemists when a valid
offer was made when the goods was taken to the counter for purchase.
When the restaurant accepts the printout and receives the money at the desk it is when an
unequivocal acceptance is taken place which is signified then and there to the consumer by the
restaurant. This is when the contract is formed. Thus when Avinash has taken the auto generated
receipt to the desk and got the coffer the contract was formed. The consideration in relation to
such contract was the money paid by Avinash and the coffee served by the restaurant. Further as
8 Edwards v Skyways Ltd [1964] 1 WLR 349
9 Balfour v Balfour [1919] 2 KB 571

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Avinash is more than 18 years old and is mentally sound he has the capacity of entering into a
contract.
Answer 1
B
Issue
The rights which Avinash has under common law and consumer protection legislation are at
issue in this case?
Rule
It has been provided by the provisions of section 3 of the Australian Competition and Consumer
Act 2010 (Cth) schedule 2 Australian Consumer Law that any person who purchases services or
goods in Australia which are less than the price of $40000 or the goods have been purchased for
householder and domestic use or the goods involve a vehicle to be used for transport is a
consumer10.
The issue in context can be analyzed by the application of the case of Donoghue v Stevenson
[1932] UKHL 10011 which is the landmark case in relation to negligence. In the case the court
formulated a rule to protect the rights of individuals in the society. The rule signifies the
identification of four three elements which are duty care, Breach, Causation and remoteness. The
case also signified that the “manufactures have a duty of care to consumers”.
In the case of Baldry V Marshall [1925] 1 KB 26012 it had been stated by the court that an
exclusion clause of a limitation or liability cause is only valid when its incorporation as a
10 Australian Consumer Law 2010 (Cth) s 3
11 Donoghue v Stevenson [1932] UKHL 100
12 Baldry V Marshall [1925] 1 KB 260

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contractual terms has been done in a valid manner. In addition the court ruled in the case of
Thornton V Shoe Lane Parking [1971] 1 All ER 68613 that where the nature of a term is so wide
and destructives of the rights of the party it has to be notified to the party in a special manner
such as through red ink. It was be prominent to the other party.
The clause can also be added in the course of dealing as per the case of Hollier V Rambler
Motors [1972] 2 AB 7114. The court ruled that where the parties were continuously dealing with
each other for a long period of time the any terms of the contract which is present would be
considered as incorporated adequately.
It has been provided through the provision of section 64A of the ACL that implied conditions
and warranties and the remedies and rights provided by the ACL cannot be excluded. Any
attempt to incorporate an exclusion clause in relation to excluding the rights under the Act would
be considered as void and make the person attempting to do so liable to prosecution15. It has
been further provided by the provisions of section 260 of the ACL that the suppliers and
manufacturers may be liable under this section if the goods supplied by them in trader or
commerce do not comply with consumer guarantees as provided by section 51-59 of the ACL16.
Under the section it is the duty of the seller to provide goods which are safe for consumption.
Application
Through the application of section 3 of the ACL it is evidently provided that Avinash is a
consumer. This is because under the section any person who purchases services or goods in
Australia which are less than the price of $40000 or the goods have been purchased for
13 Thornton V Shoe Lane Parking [1971] 1 All ER 686
14 Hollier V Rambler Motors [1972] 2 AB 71
15 Australian Consumer Law 2010 (Cth) s 64A
16 Australian Consumer Law 2010 (Cth) s 260

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householder and domestic use or the goods involve a vehicle to be used for transport is a
consumer and Avinash has purchased goods which is for personal consumption and is worth less
than $40000.
It has been further provided that while consuming the pastry Avinash has been injured as it
contained a metal string. Through the application of the case of Donoghue v Stevenson where it
is stated that “manufactures have a duty of care to the consumers”, it can be proved that Avinash
can make a claim against the restaurant for negligence. The restaurant had a duty of care which
has been breached and Avinash has suffered damages which are not too remote thus
compensation for negligence is present.
There is an exclusion clause which is present in the receipt provided to Avinash which excludes
the liability of the restaurant. As per the case of Hollier V Rambler Motors the clause has not
been incorporated through the course of dealing and Avinash has been to the place for the first
time. In addition through the application of the case of Thornton V Shoe Lane Parking although
the term was provided prior to contract formation it would not be a validly incorporated as the
nature of the terms calls for it being notifies specially to Avinash which was not done in the
given situation. Thus the clause is not valid under common law.
Under section 64A of the ACL that implied conditions and warranties and the remedies and
rights provided by the ACL cannot be excluded. Any attempt to incorporate an exclusion clause
in relation to excluding the rights under the Act would be considered as void and make the
person attempting to do so liable to prosecution. Thus the attempt of the restaurant to include the
exclusion clause which restricts consumer guarantees is void and in addition the restaurant would
be liable for prosecution.

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Under the provisions of consumer guarantees it is the duty of the seller and the manufacturer to
provide goods which are safe for consumption. However the restaurant has not provided goods
which are safe for consumption. It is further provided by section 260 of the ACL that the
suppliers and manufacturers may be liable under this section if the goods supplied by them in
trader or commerce do not comply with consumer guarantees as provided by section 51-59 of the
ACL. Thus here the restaurant would be liable to Avinash and would have to compensate him for
the loss which has occurred to him due to metal in the pastry.
Conclusion
Thus form the above discussion a conclusion can be reached that the clause has not been
incorporated under common law. The clause is invalid under ACL. The restaurant has been
negligent under common law. The restaurant has breached consumer guarantees.
Answer 2
Express terms are added in a contract by express consent of the parties. On the other hand the
existence of an implied term is determined by the courts. In the case of The Moorcock (1889) 14
PD 6417 it had been ruled by the court that implied terms are analyzed to be present in a contract
when it is obvious for a reasonable person to presume that they are present. The terms must be
necessary for the contract to be carried out. These terms are not identified when the case may be
such that the parties want to incorporate the terms so the contract becomes just and fair.
There are many ways in which express terms are added in a contract
17 The Moorcock (1889) 14 PD 64

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1. Pre-contractual statements- these are the type of terms which have discussed prior to the
formation of the contract. However if any of such terms are not present in the written
document they are not contractual terms as per the rule of parole evidence.
2. Incorporation through notice- a term is stated to be incorporated trough notice if it is
displayed prominently before the formation of a contract.
3. Incorporation through signature- in the case of L'Estrange V Graucob [1934] 2 KB 394
the court ruled that term would be a part of the contract where the contracts have been
signed by the parties18.
There are various ways in which implied terms may be added into the contracts. Some of such
ways are as follows
1. Terms implied through operation of law- win situation where weaker party is generally
provided with protection by law it is going to be an implied term as per Liverpool City
Council v Irwin [1977] AC 23919.
2. Terms implied by facts- In the case of The Moorcock It had been ruled by the court that
where it is required to provide business efficacy to the contract, implied terms can be
identified. This means that the contract would make no sense without such terms. In the
case of Shirlaw v Southern Foundries [1939] 2 KB 206 the officious bystander test was
introduced. It had been stated by the court that where a officious bystander is present
which suggested the terms to be included it is obvious that the terms are included20.
18 L'Estrange V Graucob [1934] 2 KB 394
19 Liverpool City Council v Irwin [1977] AC 239.
20 Shirlaw v Southern Foundries [1939] 2 KB 206

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3. Terms implied by customs- in Hutton v Warren [1836] EWHC Exch J61 the court ruled
that where a term is generally accepted in a trade it is an implied term21.
Conditions are the crucial terms based on which parties to the contract enter into the agreement.
In the case of Poussard v Spiers (1876) 1 QBD 410 the court stated that in case of breach of an
contractual condition the provides the right to recession to the innocent party along with any
damages they may be entitled to due to such breach22.
Warranty- a warranty is less important term of contract which is not the motive why which the
parties have got into an agreement. The court in the case of Bettini v Gye 1876 QBD 183 ruled
that breach of warranty does not result in the right to recession by merely damages23.
Classification of terms as per the facts in question 1
It has been provided through the facts discussed in the first question the express terms which
were present in the contract between Avinash and the restaurant was the he would be provided
with coffee and pastry at a certain price. In the same situation the implied term is that the coffee
and pastry would be of good quality and would not cause any harm on consumption. This is also
one of the conditions to the contract.
21 Hutton v Warren [1836] EWHC Exch J61
22 Poussard v Spiers (1876) 1 QBD 410
23 Bettini v Gye 1876 QBD 183

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Bibliography
Australian Consumer Law 2010 (Cth)
Baldry V Marshall [1925] 1 KB 260
Balfour v Balfour [1919] 2 KB 571
Bettini v Gye 1876 QBD 183
Chappell v Nestle [1960] AC 87.
Donoghue v Stevenson [1932] UKHL 100
Edwards v Skyways Ltd [1964] 1 WLR 349
Hollier V Rambler Motors [1972] 2 AB 71
Hutton v Warren [1836] EWHC Exch J61
L'Estrange V Graucob [1934] 2 KB 394
Liverpool City Council v Irwin [1977] AC 239.
Partridge v Crittenden [1968] 1 WLR
Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401
Poussard v Spiers (1876) 1 QBD 410
R v Clarke HCA 47, (1927) 40 CLR 227
Shirlaw v Southern Foundries [1939] 2 KB 206