Assessment 1 Case Study Sarah is an Australian supermodel who began an intensive fitness program to prepare for her appearance in a TV Commercial for gym equipment. She knew that she needed to be very fit. In addition to her fitness program, she decided to consult a dietician about what sort of food she should eat. The dietician suggested that she have at least one protein smoothie every day. Sarah researched a range of blenders that might suit her needs. At her local electrical store, she found that the only blenders for sale there did not meet her needs as they were not powerful enough to produce smoothies. Sarah kept looking. She had heard good things about the Homeware Store so she decided to go there to purchase a blender that met her needs. She was very happy to find that a blender was on sale at the Homeware Store. A sign advertising the blender stated: It is high quality, superb, safe and durable. You won't regret it. She purchased the blender and kept her receipt. Once home, she unpackaged the blender and as soon as she plugged it in, the upper lid came off and the sharp blades flew out, badly injuring her right hand. At the hospital, a doctor explained to Sarah that she would need stitches in her hand, and she would be unable to use her hand for four weeks unless the cut had healed, so the stitches could be removed. Sarah was very upset when she realised that she would not be able to participate in the planned TV Commercial and that another supermodel would have to take her place. This also meant she would lose the $12,000 fee that she would have received for the commercial. QUESTION 1 (10 Marks) Use the IRAC method to advise Sarah if she entered into a valid contract with Homeware Store. You will need to address the essential elements of a simple contract including offer and acceptance, intention to be legally bound, and consideration. argue with this rule Intention to Create Legal Relations The fact that parties have reached agreement does not necessarily mean that a contract has been formed. There must be an intention to create legal relations! Intention to Create Legal Relations Commercial or business agreements: In business and commercial agreements the courts assume that there is an intention to create legal contractual relations. Agreement Is there agreement between the parties? Generally characterised by an 'offer' by one party and an 'acceptance' by another. Important in determining the time, the place and contents of the agreement. Rules Relating to Offers Rules as to offers 1. An intention or willingness to be bound 2. A firm promise 3. Communication of the offer (writing, orally or by conduct) 4. There must be an intention or willingness to be bound or it may be an invitation to treat (Pharmaceutical Society v Boots) 5. It must be a firm promise (Harvey v Facey ) 6. It must be communicated to the offeree (R v Clarke) 7. The offer may be made to one person, a group or the world at large (Carlill v Carbolic Smoke Ball Co) 8. All terms must be brought to notice of offeree and followed exactly 9. The offer may be revoked by offeror at any time prior to acceptance (Routledge v Grant) Rules Relating to Acceptance Acceptance must be made in reliance of the offer The offeree must intend to accept the offer - R v. Clarke (1927) Acceptance must be strictly in accordance with the terms of the offer If the offeror specifies a method of acceptance it must be followed - Gilbert J McCaul (Aust) Pty Ltd v. Pitt Club Ltd (1954) Acceptance must be communicated Acceptance must be communicated to the offeror either by words or by conduct. Mental acceptance - is insufficient unless communication has been waived by the offeror - Felthouse v. Bindley (1862) 10 Rules Relating to Acceptance (con't) Who can make an acceptance? Acceptance must be conveyed by someone with authority - Powell v. Lee (1908) Cross-Offers Cross-offers do not give rise to an agreement Acceptance must be absolute and unconditional Acceptance must be absolute and unqualified or it may amount to a counter-offer - Masters v. Cameron (1954) 11 Rules Relating to Acceptance (con't) The postal rule Where the parties contemplate the use of the post as a medium of exchange of promises, the rules as to the time of acceptance change as follows: An offer by letter is not effective until received by the offeree. Acceptance is effective as soon as it is posted - Adams v. Lindsell (1818)If revocation of the offer is to be effective, it must be received by the offeree before they post their letter of acceptance 13 Rules Relating to Acceptance Instantaneous communications Where the communication of acceptance is instantaneous, the contract is effective when the acceptance is received - Entores Ltd v. Miles Far East Corp (1955) In cases of agreements communicated by means of telephone, fax or email, the contract is formed when and where the offeror hears or receives the offeree's acceptance. The Electronic Transactions Act 1999 (Cth) provides guidance on times for receipt and dispatch. What is Consideration? "An act or forbearance of one party, or the promise thereof, is a price for which the promise of the other is bought; and the promise thus given for value is enforceable" Dunlop Pneumatic Tyre Company v Selfridge and Co [1915] Formal Contracts Formal contracts do not require consideration e.g. deeds. Simple Contracts Valuable consideration is required for the 'agreement' to become a contract Consideration Purpose of consideration Consideration is what each contracting party bargains for and gives in exchange for the return promise or performance of the other party. The aim in defining consideration is to enable a distinction to be drawn between promises of a gratuitous nature and given freely such as gifts, and those which are onerous or 'paid for' by the incurring of some obligation Rules for Consideration 1. Consideration is essential to the validity of every simple contract It may be:- - something the promisee gives the promisor; - the carrying out of some act; or the refraining from doing something that the promisee had a legal right to do. 2. Consideration must not be past Consideration must be: - Present (executed) consideration which is an act done in return for a promise. - Future (executory) consideration where the parties exchange promises. 3.Consideration must move from the promisee: BUT it need not move to the promisor: Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co. Ltd (1915) Where there are joint promisees and only one has given consideration, the other can still enforce the promise: Coulls v. Bagot's Executor and Trustee Co Ltd (1967) Rules for Consideration 4. Consideration must be sufficient (ie have value) but need not be adequate Consideration must have value but need not be adequate as this is something only the parties to the contract can decide Chappell & Co Ltd v. Nestle Co. Ltd (1960) This means that it must have some legal value. As long as consideration exists, the courts will not be concerned about its adequacy. 5. Consideration must be possible of performance. 6. Consideration must be definite. 7. Consideration must be legal.