Victoria University BLO1105 Business Law: Case Study on Contracts

This case study analyzes the formation of a contract between John and Span and Spic dry cleaners, focusing on whether a valid contract was formed and if the store can legally depend on an exclusion clause to avoid liability for damage to John's suit. The analysis applies common law principles rega...Read More

Running head: CASE STUDY ANALYSIS
CASE STUDY ANALYSIS
Name of the Student:
Name of the University:
Author Note:

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CASE STUDY ANALYSIS
A Part:
Issues:
The issue to be analyzed in the given case study is that how the contract between John
and the store Span and Spic is being formed.
Laws:
According to the Common Law principle, a valid contract is formed after all its essential
criteria are to be satisfied (Stone and Devenney 2017). Under the common law, a contract is
formed out of an agreement, legally enforceable between the parties to the contract and that
agreement consists of the terms that determine the corresponding rights and duties of parties in
such agreement. This is entrenched in the famous Commonwealth Bank of Australia v Barker
[2014] HCA 32 case which states that mutual obligations and confidence among the parties must
be always present in an agreement. Similar observation was also made in Shaw v State of New
South Wales [2012] NSWCA 102.
In order to form a valid contract, few essential conditions are to be satisfied. the first
important condition of a valid contract is the presence of an agreement (McKendrick and Liu
2015). An agreement is usually formed by an offer made by a party to another who accepted it as
given in the case of MacRobertson Miller Airline Services v Commissioner of State
Taxation (WA) (1975) 133 CLR 125. To initiate an agreement, offer must be made which is
done by showing eagerness and intention of a party to bind in a legal relation with another. The
intention of the party is considered objectively by the court as seen in the decision of Brambles
Holdings Limited v Bathurst City Council [2001] NSWCA 61, Court of Appeal (NSW). In

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CASE STUDY ANALYSIS
this case, the court held that The offer made by such party must be communicated to the other
party by any suitable means. This is observed in the case of R v Clarke [1927] HCA 47, (1927)
40 CLR 227, High Court. In this case, it was decided that to create a contract, it is required to
show that the parties must act in good faith. There cannot be any unilateral contract as decided in
the case of Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd [1998] 205 FCA; Mobil Oil
Australia v Wellcome International (1998) 81 FCR 475. The party who makes the offer is
known as offeror and the party who accepts it is called as the offeree.
However, there lies a difference between the offer and the invitation to offer. This
distinction is given in a detailed manner in the case of AGC (Advances) Ltd v McWhirter
(1977) 1 BLR 9454 (Supreme Court of NSW). Invitation to offer or treat means a request in
general not to any specific person or party to offer to involve in to negotiations resulting a
contract. For example, items displayed to sell is an invitation to offer as seen in Pharmaceutical
Society of GB v Boots Cash Chemists (Southern) Ltd [1956] EWCA 6, [1953] 1 QB 401,
Court of Appeal (England and Wales). Similarly, board containing price of objects or services
is also regarded as the invitation to deal or offer.
In order to form the agreement, the offer made must be accepted by another part. Unless
it is accepted, no agreement is formed. Similar to offer, acceptance is to be communicated too as
observed in the case of Bressan v Squires [1974] 2 NSWLR 460. Acceptance is to be made in
response to offer as seen in Crown v Clarke (1927) 40 CLR 227 (High Court) case. in the case
of Gibson v Manchester City Council 1979 1 WLR 24, the court held that agreement only
exists when there lies a clear offer which is accepted. Moreover, acceptance need not to be
express always and can be implied from the conduct of the parties to whom it is made as seen in
Tonitto v Bassal (1992) 28 NSWLR 564 where it is seen that option to purchase land is not

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CASE STUDY ANALYSIS
validly executed when three documents were needed to be sent and one was sent for some other
reason previously. Moreover, acceptance cannot be unequivocal as seen in Spencer's Pictures
Ltd v Cosens [1918] NSWStRp 1, (1918) 18 SR (NSW) 102, Supreme Court (NSW,
Australia).
The second important aspect of any contract is the existence of consideration. A promise
made out of offer and acceptance can be enforced only if it is supported by a suitable
consideration as observed in decision of Beaton v McDivitt (1987) 13 NSWLR 162. It is not
necessary that to constitute a valid consideration only monetary deposit is to be considered.
Consideration can be money or a promise to perform or to not perform a particular act as held in
Woolworths Ltd v Kelly (1991) 22 NSWLR 189. As per Australian law of contract, there is no
definite rule to determine the sufficiency of the consideration, it should be just present. The
amount or nature of consideration may vary with the parties. Consideration can also include love
and affection as observed in the case of Director of Public Prosecutions for Victoria v Le
[2007] HCA 52, (2007) 232 CLR 562, High Court. However, it has been decided unanimously
in several cases that past consideration is not a sufficient consideration as seen in Harrington v
Taylor 36 SE 2d 227 (1945) case. It is seen in the case of Musumeci v Winadell Pty Ltd
(1994) 34 NSWLR 723. In the similar manner, an agreement with illusory consideration is void
in the eye of law as given in Thorby v Goldberg [1964] HCA 41, (1964) 112 CLR 597, High
Court.
The third essential of a contract is the parties’ capacity to create contract. Certain persons
are strictly prohibited by law to contract as they lack capacity to contract as held in Gibbons v
Wright (1954) 91 CLR 423 (High Court). If they enter in to contract, it will be regarded as
void. Drunken person is prohibited to enter in to contract as decided in the case of Blomley v

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Ryan (1956) 99 CLR 362 (High Court). Similarly, minors are also prohibited to enter into
contract according to the provisions of Minors (Property and Contracts) Act 1970 (NSW).
Mentally impaired people also lack capacity to contract as seen in the case of Gibbons v Wright
[1954] HCA 17, (1954) 91 CLR 423, High Court.
The fourth essential is the parties’ intention to create legal obligations as held by
Administration of PNG v Leahy (1961) 105 CLR 6. As held in Ermogenous v Greek
Orthodox Community of SA Inc [2002] HCA 8, the conduct or behavior of the parties is to be
considered to determine the intention of the parties.
The last condition is the certainty such that the parties must be certain about the terms
and conditions of the agreement of the contract. It was entrenched in Coal Cliffs Collieries Pty
Ltd v Sijehama Pty Ltd (1991) NSWLR 1 case. When all the above mentioned conditions are
satisfied, then a valid contract is created.
Application:
In this present case, John who is a graduate in business is working in an esteemed firm.
From these facts, it is seen that he not being a minor has the capacity to create contract. When
John went to the Span and Spic store to give his suit for purpose of dry cleaning, he found that a
notice board showing the cost of different services provided by them. Thus according to the
decision given in the case of AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454
(Supreme Court of NSW), it is an invitation to offer and not an offer to contract. John
responded to that invitation by giving his suit for dry cleaning. This forms the offer of the
agreement by John. When the store takes his suit for drycleaning, the offer is accepted. Hence a

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CASE STUDY ANALYSIS
valid agreement is formed between the parties, that is, John and store as per the Australian
Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 (High Court).
John chooses the premium option for dry cleaning option and discussed with store
assistant who suggested him that the store uses best quality of machines as well as chemicals and
assured that no harm will be caused to suit. This showed the intention of the parties that both
have agreed to contract. Moreover, the store issued a receipt with customer number and the
amount to be paid when the suit is going to be delivered.
Hence, the conditions required to create a valid contract are there. Thus the contract binds
both John and the store. Both the parties are subjected to the rights and duties of the agreement
given in the contract.
Conclusion:
Hence, from the above discussion it is seen that a contract is validated between John and
the store.
B Part:
Issue:
The issue to be discussed here is whether the store is entitled legally to depend on the
clause at the back side of the receipt issued to John by the store to avoid its liability related to the
damage caused to his suit.

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CASE STUDY ANALYSIS
Rules:
In contract, exclusion clause means a condition that has the hidden aim to impose
restrictions or exclusion on the party’s liability for the infringement of the contract. The
exclusion clause to be made binding on the parties it must made part of the contract (Latimer
2016). An exclusion clause to be made operating on the parties, its incorporation is to be done by
either of the three methods; incorporation by way of signature, incorporation by giving notice
and incorporation by previous transactions as given in the Darlington Futures Ltd v Delco
Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 (16 December 1986). As per
provisions of the law of contract, parties to the contract shall have clear idea of the existence of
the exclusion clause. The other party can be informed about the exclusion clause by making him
read it or by giving actual notice. The party who is giving the exclusion clause has a
responsibility to inform the other about it as seen in the case of Sydney Corporation v West
[1965] HCA 68; (1965) 114 CLR 481 (High Court).
According to section18 of the ACL (Australian Consumer Law) provided in Schedule 2
of Competition and Consumer Act 2010 (Cth) restrictions are put on misinterpreting or
deceptive act of the parties in transactions related to transactions and also states that these
criterion cannot be denied in consumer dealings.
Negligence of one party may result into loss or injury to other party and when an
exclusion clause is to be used in a contract, it must be put into the notice of the other party. In
addition to this, s60 of Australian Consumer Law, for contracts related to services, the clause
that company will not take any liability in future for the loss or damage is void because it is
against the principle of equity. Any service provided by the provider or manufacturer is to be
done with proper skill and care.

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CASE STUDY ANALYSIS
Application:
In this case, John is working in an esteemed firm. He is trying to appoint Big Bank as his
client for the past few months. He succeeded in getting an appointment with Big Bank’s CEO.
This appointment is going to be very important for John as it will help him to progress in his
career. Considering the importance of the meeting scheduled on 15th of May at 2.30 pm, he
decided to wear the best dress. Since he had not used his suit for a long time, he wants to get it
dry cleaned from the store named Span n Spic. From these facts, that it is seen that he has the
capacity to contract. When John went to the Span and Spic store to give his suit to dry clean, he
found that a notice board showing the cost of different services provided by them. Hence, he
visited the store.
John chooses the premium option and discussed with store assistant who suggested him
that the store uses best machines and chemicals and assured that no harm will be caused. This
showed the intention of the parties that both have agreed to contract. Moreover, the store issued a
receipt indicating amount for the service to be paid when delivery of the suit will be done. Thus,
the contract was valid between both John and the store and hence, they were bound by the terms
in the contract.
John selects the premium option for dry cleaning option and discussed with store
assistant who suggested him that no harm will be caused to his suit.
However, at the back of the receipt, a clause is mentioned stating the store will not be
bound by any liability for any damage to the suit while it was given under their service. This
clause given at backside of the receipt can be referred to as the exclusion clause as per the
decision given in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR

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CASE STUDY ANALYSIS
165; 79 ALJR 129; 211 ALR 342 (High Court). it is against the principle of equity, justice and
good conscience.
This clause limits the responsibility as well as the liability of the store for the damage it
caused on John’s coat. According to the Australian Consumer Law, thus clause is void as it
against the principle that whenever any service is to be rendered, it must be done with care and
no damage is to be caused in it. Here the store Span and Spic failed to perform its service
skillfully and carefully. It has thus breached section 60 of the ACL. Thus, it cannot exclude its
liability against the breach of the contract as it did not performed dry cleaning properly causing
damage to the coat as per the decision given in ACCC v Valve Corporation (No 7) [2016] FCA
1553.
Conclusion:
Thus, from the rules enumerated and the discussion made above, it can be said that the
store Span and Spic is bound by the contract between them, and hence it cannot give up the
liability for damaging the coat of John by depending on the exclusion clause mentioned at the
receipt’s backside issued by the store.

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References:
ACCC v Valve Corporation (No 7) [2016] FCA 1553.
Administration of PNG v Leahy (1961) 105 CLR 6.
AGC (Advances) Ltd v McWhirter (1977) 1 BLR 9454 (Supreme Court of NSW).
Beaton v McDivitt (1987) 13 NSWLR 162.
Blomley v Ryan (1956) 99 CLR 362 (High Court).
Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61, Court of Appeal
(NSW).
Bressan v Squires [1974] 2 NSWLR 460.
Coal Cliffs Collieries Pty Ltd v Sijehama Pty Ltd (1991) NSWLR 1.
Commonwealth Bank of Australia v Barker [2014] HCA 32.
Crown v Clarke (1927) 40 CLR 227 (High Court).
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 (16
December 1986).
Director of Public Prosecutions for Victoria v Le [2007] HCA 52, (2007) 232 CLR 562, High
Court.
Gibbons v Wright (1954) 91 CLR 423 (High Court).
Gibbons v Wright [1954] HCA 17, (1954) 91 CLR 423, High Court.

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CASE STUDY ANALYSIS
Gibson v Manchester City Council 1979 1 WLR 24
Harrington v Taylor 36 SE 2d 227 (1945).
Latimer, P., 2016. Protecting consumers from unfair contract terms: Australian comparisons.
MacRobertson Miller Airline Services v Commissioner of State Taxation (WA) (1975) 133 CLR
125.
McKendrick, E. and Liu, Q., 2015. Contract Law: Australian Edition. Macmillan International
Higher Education.
Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd [1998] 205 FCA; Mobil Oil Australia v
Wellcome International (1998) 81 FCR 475.
Musumeci v Winadell Pty Ltd (1994) 34 NSWLR 723.
Pharmaceutical Society of GB v Boots Cash Chemists (Southern) Ltd [1956] EWCA 6, [1953] 1
QB 401, Court of Appeal (England and Wales).
R v Clarke [1927] HCA 47, (1927) 40 CLR 227, High Court.
Shaw v State of New South Wales [2012] NSWCA 102.
Spencer's Pictures Ltd v Cosens [1918] NSWStRp 1, (1918) 18 SR (NSW) 102, Supreme Court
(NSW, Australia)
Stone, R. and Devenney, J., 2017. The modern law of contract. Routledge.
Sydney Corporation v West [1965] HCA 68; (1965) 114 CLR 481 (High Court).
The Competition and Consumer Act 2010 (Cth).

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CASE STUDY ANALYSIS
The Minors (Property and Contracts) Act 1970 (NSW).
Thorby v Goldberg [1964] HCA 41, (1964) 112 CLR 597, High Court.
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; 79 ALJR 129; 211
ALR 342 (High Court).
Tonitto v Bassal (1992) 28 NSWLR 564
Woolworths Ltd v Kelly (1991) 22 NSWLR 189.