Australian Contract Law Effect of Pre Contract

Question: Describe about the Australian Contract Law for Effect of Pre Contract. Answer: Applicable law In Australia, a contract can only be formed when all the contract essentials are present in a particular situation. The main contract essentials are agreement, capacity of the parties, consideration and legal intention of the parties.[1] But, even when a valid contract is made, still, the said contract can later be rescinded by the parties provided such contract is suffered from any kind of misrepresentation or unconscious able conduct. Thus, in order to deal with all the issues that are raised above there are few contracting law provisions which are important to understand? Now, whenever a contract is to be made, it is necessary that there must be the formation of a valid agreement. A valid agreement can only be made when an offer is supported by an acceptance.[2] An offer is a contract element which is made by an offeror. When a communication is made by an offeror to an offeree through whom an offeror specifies his intention to do or not to do any tasks and expects to get the approval from such an offeree then an offer is made and is held in MacRobertson Miller Airline Services v Commissioner of State Taxation (WA)(1975). Also, when an offer is made then it is very important that such an offer should be made to an offeree and must reach an offeree. If there is no communication of an offer, then, such an offer is invalid in law. an offer can be made orally or in written form.[3] An offer can be made to any particular person or to the world at large. But, when instead of making an offer, the person wishes to receive an offer from the public then the same is called invitation to treat and is held in Pharmaceutical Society v Boots Chemists (1953). An invitation to treat can be made by various modes, such as, advertisement, auctions, tenders, etc,. When an invitation to treat is made then the public has an option to make an offer to the person who has made an invitation Carlill v Carbolic Smokeball Co (1893). The public is treated as an offeror and the inviter reacts like an offeree.[4] When an offer is made as per the principle laid down in law and is valid, then, it is necessary that such an offer must be approved by an offeree. Such an approval is called acceptance and is held in Crown v Clarke (1927). An acceptance is said to be valid when the same is made by an offeree and reciprocates to the terms of an offer. If any changes are made to the terms of the offer, then, such approval is not acceptance and is called counter offer and is held in Hyde v Wrench (1840). When a counter offer is made then the offer so made by an offeror is cancelled and thus resulting in no acceptance.[5] When both offer and acceptance is made by the parties, then there is a valid agreement that is made amid the parties. In Australia, a verbal agreement, when a verbal offer is made by an offeror which is verbally accepted by an offeree is valid and has full sanctity like a written agreement.[6] Further, an agreement requires consideration, capacity and legal intention to convert it into and contract. Consideration is the next essential which is required in the formation of a valid contract. A consideration is something of value which is exchanged amid the parties in order to support the promises which are made amid them (Coulls v Bagots Executor Trustee Co Ltd (1967). A consideration is needed not to be absolute but the same must be sufficient in order to support the agreement (Biotechnology Australia Pty Ltd v Pace (1988))[7]. Consideration can be in the form of money or in kind but must have value in the eyes of law (White v. Elmdene Estates (1959)).[8] Lastly, the parties must have attained the requisite age and are of sound mind in order to make a valid contract. Also, the intention of the parties should be legal in order to make a valid contract. If the parties do not intent to abide by the contract then there is lack of legal intention and the contract is not valid in law. When all the contract essentials are present then a valid contract is made amid the parties. However, even when a valid contract is made, still, there are situations that exists under which if any contract is suffered from any misrepresentation or deception, then, such contract can be rescinded by the party who has been misrepresented or mislead. In the law of contract, when one party has made a statement of fact which is false in nature and such statement has induced the relying party to enter into a contract with the party who has made the statement then it is an act of misrepresentation (MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010)). Misrepresentations are of various kinds. Such as:[9] Innocent misrepresentation when the misrepresentation is made innocently by the party not knowing the defect in the goods and believes that his statement is true then such kind of misrepresentation is innocent in nature There are no damages that can be claimed by the aggrieved party; however, the party has option to cancel the contract provided the parties can be restored to their pre-contractual positions. Negligent misrepresentation when the representing party ahs made the statement negligently, that is, he owns a duty to make a true statement and knows that his mis-statement may cause damage to the representing party and he does make an untrue statement negligently, then, the representing party is negligent in his acts ((Hedley Byrne Co Ltd v Heller Partners Ltd (1964). In such conditions, the aggrieved party can claim damages from the defaulting party and can cancel the contract. Fraudulent misrepresentation when the representing party has made the statement recklessly then a fraudulent statement is made (Derry v Peek (1889). In such situations, the contract can be cancelled and damages can be sought. Further, some of the provisions of the schedule 2 of the Competition and Consumer Act 2010 (Australian Consumer Law (ACL)) are necessary to be evaluating to resolve the issues. As per section 18 of ACL, submits that no person who is acting in commerce/trade should act in a manner that is deceptive or misleading or likely to do the same.[10] Further section 29 of ACL submits that no person in commerce/trade should act in a manner or make any misleading/false representation, that the gods so supplied is of any specific quality or standard or grade or value or style or composition or model or have a specific historical background or are novel or are of a particular place of origin, etc . Any violation of section 2 will impose peculiarly penalty.[11] Section 36 (1) of the ACL specifically submits that no person in commerce/trade should accept payment or any other form of consideration if such person intends to not to supply the goods so offered. Also, as per section 2, a person should not accept the payment or other form of consideration if the acceptor intents to supply the goods which are materially different from what is offered. Violation of sub section 1 and sub section 2 will impose pecuniary penalty on the violator. Further, as per section 20 of the ACL, a person in commerce/trade should not engage in any kind of unconscionable activity or actions. A conduct is considered to be unconscionable when the same is oppressive or harsh in nature. An unconscionable conduct is not simply unfair but it is more than that. When the actions which are made deliberately and which are conducts which are simply unreasonable and unfair then such kinds of conduct are considered as unconscionable conduct. As per section 21 of ACL, there are various instances which can be considered as unconscionable, such as, the bargaining powers of the parties, the pressure or undue influence used by the stronger party upon the weaker party, the degree with which the parties have acted in good faith, etc[12]. If a person is found to be engaged in an unconscionable conduct, then, such defaulter can be imposed with damages, compensation, penalties, refund of payment, the contract can be cancelled or varied or specific performance can be sought by the aggrieved party. Application of law Now the law is applied to the facts of the case. Contract amid Garry and Fred As per the facts, Garry has made a verbal offer to Fred and offered Fred 50 Genuine Armani Coats made in Italy @$10,000. In exchange of the coat, Gary wants cash or the equivalent. Now, in contract law, an offer can be made orally or in written form. Since, Garry has made an oral offer then such an offer is also valid in law. An offer is made by Garry to Fred who is duly accepted by Fred in exarches of @$10,000 cash or equivalent. Since offer and acceptance are made thus there is a valid agreement amid the two. But, to convert such an agreement into contract it is necessary that the same must be supported by valid consideration. Since Fred does not have @$10,000 cash so he gave Garry gold bullion as full and final payments for the coat. The gold bullion was given to him by Pete in exchange of Kia car which was worth $18,000. The gold bullion was later found to be a painted iron. Garry weight the bar and accepts the same as he knows the value of gold. Now, since against the Armani coats, Garry desired to have cash or something equivalent, thus, the gold bullion can be considered as a valid consideration in exchange of coats offered by Garry. Also, both Garry and Fred are legally capable and intent to abide by their mutual promises, so there is a valid contract amid the two. However, the gold bullion that was supplied to Fred by Pete was a painted iron. However, Fred was not aware of the same and the gold bullion was supplied by him in good faith. So there was no misrepresentation or unconscionable conduct which was undertaken by Fred in order to lure Garry. However, Garry while selling the Armani coats to Fred has represented a fact that the coats so supplied are GENUINE ARMANI Coats. However, later it was found that the coat were not genuine, rather, the same was tagged as Georgy Armani-made in Italy Venezuela. Hence, a misrepresentation was made by Garry which was false and which was made to induce Fred to establish a contractual relationship with him. So Garry has violated a common law principle and section 18 of ACL and is thus liable under law. Also, an unconscionable conduct was undertaken by Garry as Fred was dealing with him in good faith and Garry took advantage of his bargaining powers to cheat upon Fred. So there is a clear violation of section 20 of ACL. Also, the goods so supplied by Garry to Fred were of not the same quality that was offered by him and he accepted the payment for goods which he never intended to supply. Thus, there is a clear violation of section 29 and section 36 of ACL. So, in these circumstances, Fred has every right to cancel the contract with Garry and return the coats to him and claim refund and compensation and damages. Contract amid Fred and Pete As per the facts, since Fred does not have money to pay Garry so, he offered Pete his Kia car @ $ 10,000, the actual worth of which is $18,000. Pete is willing to buy the car but in exchange of car Pete wishes to pay in gold bullion. Fred agrees to the same and gave his car in exchange of gold bullion. Thus, a valid offer of a Kia car was made by Fred who was duly accepted by Pete and in exchange of golf bullion. Hence, a valid offer was accepted against a valid consideration by capable parties with legal intention. Thus, there is a valid contract that is made amid the parties. However, the gold bullion which was provided by Pete in exchange of gold bullion was turned out to be a painted iron. In such scenario, Pete is in clear voi8lation of section 18 of ACL as he misrepresented a statement of fact, that is that the bar is a gold bullion and induced Fred to make a contract with him. Also, the good which is offered by Pete is not of the same quality and characteristics that was presented by Pete, thus, there is violation of section 29 of the ACL. Also, Pete has acted unconsciously as he holds an advantageous position (both are friends and holds a relationship of trust) and thus has violated section 20 of ACL. In such scenario, Fred has every right to cancel the contract with Pete and can claim his car back from him. Contract amid Fred and Tommy As per facts, Fred advertises for the sale of the coats as Genuine Famous Name Jackets for less than cost. Tommy after viewing the advertisement and after carefully examining the fabric considers it to be good wool. He buys the whole stock from Fred @ $25,000. He gives a deposit @ $1,000 and leaves his $10,000 watch as security. Now, Fred has published an advertisement which is an invitation to treat. Tommy has made an offer which was accepted by Fred against a token money and deposit. Since the consideration though not adequate but sufficient hence there is a valid contract between the two. So, Tommy cannot rescind the deal later. However, later when Tommy decided to sell the garments, it was found that the garments were not Famous Name Italian Jackets at half Price @ $500 each Tommy but was actually a Georgy Armani-made in Italy Venezuela. In such scenario, the goods which were supplied by Fred were not of the same quality as declared by him but the declaring was made innocently. There was no misrepresentation or unconscionable conduct by Fred. So, Tommy can only seek damages from Fred Conclusion Thus after understating the law and after applying the same on the given facts and circumstances, it is submitted that Fred had every right to cancel the contract with Garry as the same is suffered by misrepresentation and unconscionable conduct. Also, Pete has acted in violation of section 18, 20, 2 of ACL and thus Fred can claim his car back. Since, Garry has himself has acted not in good faith, so, no claim can be brought by him against Fred and Pete. Lastly, since there was no misrepresentation or unconscionable conduct by Fred, so only damages can be claimed by Tommy. Reference List ACCC. (2016) unconscionable conduct https://www.accc.gov.au/business/anti-competitive-behaviour/unconscionable-conduct. Accessed on 26th August 2016. Barton P. (2013). THE EFFECT OF PRE-CONTRACTUAL REPRESENTATIONS Presented on 6 March 2013 at Legalwise Contract Risk Management Seminar Melbourne https://www.foleys.com.au/resources/2Paper%20-%20Barton.pdf. Accessed on 24th August 2016. Biotechnology Australia Pty Ltd v Pace (1988) Clark J. (2012). Australian Contract law- Formation https://www.australiancontractlaw.com/law/formation-agreement.html. Accessed on 24th August 2016. Clark J. (2016). Australian Contract Law. https://www.australiancontractlaw.com/legislation/cthacl.html. Accessed on 26th August 2016. Clark J. (2015). Consideration https://www.australiancontractlaw.com/law/formation-consideration.html. Accessed on 24th August 2016. Carlill v Carbolic Smokeball Co (1893) Coulls v Bagots Executor Trustee Co Ltd (1967) Crown v Clarke (1927). Derry v Peek (1889). Find Law. (2016). Is a verbal agreement legally binding? https://www.findlaw.com.au/articles/5626/is-a-verbal-agreement-legally-binding.aspx. Accessed on 24th August 2016. Hedley Byrne Co Ltd v Heller Partners Ltd (1964). Hyde v Wrench (1840). Latimer P. (2012). Australian Business Law 2012, CCH Australia Limited, 2012. MacRobertson Miller Airline Services v Commissioner of State Taxation (WA)(1975) Moles R. (1998). Contract Law Lecture - Formation of Contract - Offer and Acceptance https://netk.net.au/Contract/02Formation.asp. Accessed on 24th August 2016. MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) (2010). Pharmaceutical Society v Boots Chemists (1953). The Law Hand Book. (2016). Element of a contract https://www.lawhandbook.org.au/07_01_02_elements_of_a_contract/. Accessed on 24th August 2016. The Law Teacher. (2016). cases, https://www.lawteacher.net/cases/contract-law/agreement-cases.php . Accessed on 24th August 2016. White v. Elmdene Estates (1959).