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Business Law

Australia follows the Common Law System and inherited the basic elements of contract law from the English contract laws with little or no modification. Specific areas of contract law follow the available precedents set by the judgements given by the courts in the country. The basic elements of an essential contract have to be followed[1], which include:

  1. A valid offer and acceptance with regard to the contract[2].
  2. Essential consideration has to be paid.[3]
  3. The parties should be capable and eligible to contract.
  4. Both parties should have an intention to enter into a legally enforceable contract.
  5. The purpose of the contract should be to fulfil an object that is certain[4].

 In the given situation, the contract included the concept of invitation to offer or invitation to treat. An offer, if valid when made, the acceptance of it results in a contract. The offeror cannot rebuke the offer after an acceptance has been made. In the case of invitation to treat, the offeror makes an invitation to treat by inviting offers from the other side. This offer may then be accepted by the offeror to result in a valid contract, for e.g., items on display in windows of the shop with a specific price or a rate of discount is not considered to be an offer, but an invitation to offer. The buyer interested in purchasing the item enters the shop and makes an offer to buy the item at the displayed amount or any other amount. This particular act of the interested buyer shall be considered as a valid offer for the purpose of a contract and the subsequent acceptance of the shopkeeper converts the transaction into an agreement/contract[5]. The shopkeeper may refuse to accept the offer, even if the offered price is the same as displayed. Auctions are considered as an invitation to offer.[6] The invitation for tenders may also be included in this category.[7] This concept has been given various names all over the world such as invitation to deal, invitation to treat or invitation to offer.

The major point of difference between an Offer to Contract and an Invitation to Contract is that the invitation acts only as an invite for parties to make their offers with no intention to make a legally enforceable contract unless and until an offer is accepted whereas, an offer is made with the intention to enter into a binding agreement. It is up to the maker of the invitation to accept the offer or not. The difference between Offer and Invitation to Treat has been discussed in detail in the case of Harvey v Facey[8] where the plaintiffs sent a telegram inquiring about the lowest price for a property and the defendant replied to the question. The plaintiffs subsequently claimed that the price stated in the telegram sent as reply should be considered as an offer. The Court refused to accept the claim and held that the defendant had no intention to enter a legal relation and had just replied to the query of the plaintiff.

Thus, it may be said that the given problem is one of Invitation to Treat and does not give rise to a binding agreement. The advertisement made by Nandini is an invitation to the open public to visit the website or her shop and when they offer to purchase the computer at the given price, she may accept the offer, converting it into an agreement. Only individuals who visit the website or the shop and intend to purchase the computer are the ones with whom a contract can be entered into.[9]

Business Law - Question 1

Advise Angelo what legal rights he has under the common law of contract in respect of the computer that he wished to purchase. Your answer must include relevant legal principles and relevant case law to support your answer.

Legal Issue:

In an Invitation to Treat, does the seller have any legal binding to perform any act before an acceptance is made as it is an invitation made to open public.

Legal Rules:

Invitation to Offer does not give rise to a binding agreement at the instance of acceptance by the buyer. The buyer has to respond to the invitation by making an offer. Subsequent acceptance may give rise to a binding agreement.

Application:

The test of Invitation to Offer is that the party does not give out an offer with terms and conditions, but invites the other party to do so. The invitation to offer is made to the public.[10] It may be categorised into 3 types:

  • Display of Items/Goods
  • Advertisements to the public[11]
  • Auctions or invitation to submit tenders

The case of Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd[12]introduced the concept of ‘Invitation to Offer/Treat’. In this case, the situation in a self-service store was discussed and it was held that the customers could select the items they wish to buy and then proceed towards the counter. This was considered to be an Offer in return of the Invitation to Treat. It would be up to the shop-keeper or cashier sitting at the counter to accept or refuse the offer made by the buyer. In another landmark case of Fisher v Bell[13], it was held that items displayed in the shop window constituted an Invitation to Treat.

The only remedy available to Angelo is that he may claim that there was an oral contract with regard to the sale and purchase of the computer in question when he had called up Nandini and expressed his desire to purchase the product.[14] Nandini had not refuted or disagreed to sell the computer on the call.[15] It has been held in the case Winter v Nemeth[16], the Court held that the enforceability of a verbal contract shall be decided on the following principles:

  • The Court shall look into what a reasonable person might infer from the language that was used by the parties to agree on the matter.
  • Whether both the parties wanted to enter into legal relations keeping the circumstances at the moments and the statements made at that point of time.
  • The relationship between the parties may also provide help with regard to the intentions of the parties.

If all these principles are applied on the given scenario, it is clearly seen that during the telephonic conversation between both the parties, they were willing to make the transaction.[17] The item was available for sale, the price was mentioned by Angelo and agreed to by Nandini. Thus, precedents may be relied on to prove that an oral contract[18] had ensued between both the parties and Nandini was under an obligation to sell the product to Angelo due to the existence of an oral contract between the two parties. It is a principle of contract law that any act which displays the intention to enter into a contract may convert an advertisement to an offer.[19]

Thus, Angelo may be allowed to sue for specific performance of contract. Under the provisions of Specific Performance of contract, the party suffering loss due to the non-fulfilment of the contract can sue the other party and mandate them to fulfil the promise made in the contract. Specific Performance of contract is usually awarded by courts when the damage suffered by a party causes irreparable harm and cannot be remedied by the damages payable for breach of contract. The situations in which a Court may grant specific performance or specific enforceability are as follows:

  • Where no other suitable remedy is available
  • Valid contract in existence
  • Unreasonable delay in a contract where time is an essential element.

Specific Performance of contract is not granted where monetary compensation for the breach of contract is available and adequate.

 In this particular situation, Angelo will not be able to purchase the Apple computer for such a low price in any other shop, and thus, it fits into the category of irreparable loss. Monetary compensation cannot exceed the price that was agreed upon by both the parties for the product as damages cannot exceed the amount. Thus, monetary compensation shall not be adequate in this situation and the only way to nullify the loss suffered by Angelo would be specific performance of the contract.[20]

Conclusion:

 Under the provisions of the Common Law System, the advertisement made by Nandini on 1 August stating that all computers would be sold at 50% off at the shop was an Invitation to Treat. There was no intention to enter into a legally binding contract until an offer was made by the buyer and thus, she was not under an obligation to enter into a contract with Angelo. Without a valid contract, Angelo has no legal remedies that he can sue Nandini for. However, the onus is on Angelo to prove that a relationship exists between him and Nandini; and the conversation over the phone gave rise to some sort of agreement as an intention[21] to enter into a contract was shown by both parties[22], the Invitation to Treat got converted into an Offer at that very moment. This offer was accepted by Angelo and he further acted on it by going to the store owned by Nandini for the delivery and payment of the Apple computer. Thus, it can be considered that there was an existence of a verbal or oral agreement between the parties, under the provisions of which, Nandini should be obligated to sell the computer to him. Since the legal system followed in Australia recognises oral contracts between parties, Angelo shall be able to claim specific performance of the contract subsequent to that.

However, if Angelo is not able to prove that the telephonic conversation gave rise to a contract then Nandini shall owe no obligation towards Angelo and there are no remedies to claim if no contract exists between the two parties.

Business Law - Question 2

Assume the computer is still available for sale but Nandini says to Angelo she has changed her mind about the price and that it is now for sale for $1, 800. Analyse whether Nandini has acted in breach of a relevant statute law studied in this course. Your answer must identify the relevant statute and section(s) together with a discussion on its relevance to the given facts.

Legal Issue:

Can initial mention of price for sale of items be held binding on the seller or can it be changed subsequently?

Legal Rules:

In an Invitation to treat, the initial offer of price is not binding on the seller and he may refuse to deal at the same price subsequently.

Application:

According to the provisions of Common Law System, Nandini has committed no breach of the principles of contract law by making a change in the price in which she wants to sell the Apple computer. There was no formation of a valid contract between the two parties. The advertisement should be considered as an Invitation to Treat, the act of Angelo trying to purchase the computer maybe considered as an offer to contract.[23] Nandini can choose to refuse the offer, and she cannot be held liable as there is no existing contract between the two parties and thus, there can be no breach. There has been no acceptance to the offer, giving rise to a valid contract. However, the hike in price made by Nandini for the same item may be considered as a counter offer made by Nandini to Angelo.[24] Once a counter offer is made, the previous offer ceases to exist and if the counter-offer is rejected by Angelo, Nandini cannot choose to go back and accept If Angelo chooses to accept this offer, an orally binding agreement will be entered into by both parties and they shall be held liable in case of breach subsequent to that.[25]

If Angelo is able to prove that there was an oral contract between the two parties, as mentioned in the previous answer, then the subsequent rise in price of the product shall be considered as a breach of valid contract that had been entered into via telephonic conversation between the two parties. Nandini may be made liable for specific performance of contract or to pay damages to Angelo for the breach of contract under the Doctrine of repudiation committed by her.[26]

Conclusion:

The answer and result of the given situation largely depends on the outcome of the previous given answer with respect to whether Angelo is able to prove to the Court of law that an oral contract has been entered into during the telephonic conversation between the two parties or not. If the case is proved, then Nandini may be held liable for breach of contract and be asked to pay damages or perform the obligations of the contract.[27] On the other hand, if no existing contract is proved, then Nandini cannot be said to have committed a breach as there would be no existing contract between the parties and the original concept of Invitation to Treat will be followed.

Bibliography for Essentials of Contract Law

Cases

Smith v Hughes Court of Queen's Bench [1871] LR 6 QB 597

Clarke v The Earl of Dunraven and Mount-Earl (The "Satanita") [1897] AC 59; Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd Court of Appeal (NSW) (1988) 14 NSWLR 527

Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424.

Raffles v Wichelhaus (1864) 2 H & C 906; [1864] EWHC Exch J19; 159 ER 375

Pharmaceutical Society of Great Britain v Boots Court of Appeal [1953] 1 QB 401; [1953] 1 All ER 482, [1953] 2 WLR 427

AGC (Advances) Ltd v McWhirter Supreme Court of New South Wales (1977) 1 BLR 9454

Blackpool & Flyde Aero Club v Blackpool Borough Council Court of Appeal [1990] 3 All ER 25

Harvey v Facey [1893] UKPC 1, [1893] AC 552

Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1

Partridge v Crittenden [1968] 2 All ER 421

Pharmaceutical Society of Great Britain v Boots Cash Chemists Ltd [1952]2 QB 795, [1953]1 QB 401

Fisher v Bell [1961] QB 394

Yasmine Taylor v Camille Roberts [2018] NSWLC 9

Ermogenous v Greek Orthodox Community of SA Inc [2002] 209 CLR 95

Winter v Nemeth [2018] NSWSC 644

Balfour v Balfour [1919] 2 KB 571 [UK]

Watson v Foxman (1995) 49 NSWLR 315

Ashton v Pratt (2014) 88 NSWLR 281; [2015] NSWCA 12

Dougan v Ley (1946) 71 CLR 142

Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424

Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1989] 2 NSWLR 309

Gibson v Manchester City Council [1979] 1 WLR 294

Hyde v Wrench [1840] EWHC Ch J90

Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd [1998] 205 FCA; Mobil Oil Australia v Wellcome International (1998) 81 FCR 475

Carr v JA Berrimen Pty Ltd [1953] HCA 31; (1953) 89 CLR 327

Luna Park (NSW) Ltd v Tramways Advertising Pty Lt (1938) 61 CLR 28

Articles

Aitken, L. (2020). Heydon on Contract.

Eisenberg, M. A. (1994). Expression Rules in Contract Law and Problems of Offer and Acceptance. Cal L. Rev., 82, 1127.

Izmalkov, S., & Sonin, K. (2017). Basics of contract theory. VOPROSY ECONOMIKI, 1.

Katz, A. (1990). The strategic structure of offer and acceptance: game theory and the law of contract formation. Michigan Law Review, 89(2), 215-295.

Priestley, L. J. (1989). A Guide to a Comparison of Australian and United States Contract Law. UNSWLJ, 12, 4.

Quinot, G. (2006). Offer, acceptance and the moment of contract formation. In European Contract Law. Edinburgh University Press.

Rakoff, T. D. (2016). The Five Justices of Contract Law. Wis. L. Rev., 733.

Schlesinger, R. B. (1968). Formation of contracts: A study of the common core of legal systems.

Peng-sheng, S. U. I. (2004). Effect of Invitation to Offer and Admission Rule [J]. The Political Science and Law Tribure, 1.

Jinghua, W. A. N. G. (2007). On the Legal Significance of Invitation to Offer or Not. Wuhan University Journal (Philosophy & Social Sciences), (2), 21.

Elliott, C., & Quinn, F. (2007). Contract law. Pearson Education.

Santana, A. (2019). INVITATION TO BID.

Books

McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Law Assignment Help

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