The Validity of the Formation of the Contract - Example

Research Problem Question 1 Name Institution Name Course Name and Code Date A) Discuss the validity of the formation of the contract between Raj and CSR. [10 marks] In determining the validity of any contract, essential elements have to be acknowledged. Offer and acceptance is an important essential element in which there should be a ‘lawful offer’ and ‘lawful acceptance’ by both parties. Two parties are usually involved, which are the offeror that makes and offers the contract and the offeree, creates a binding document. Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 is a leading case when it comes to contract because it incorporates essential elements of a contract, which includes the intention to create legal relations, consideration and offer and acceptance1. Analysis of the case indicates CSR offered a service, defined the times, and Raj consented through accepting the terms and conditions. The lack of reading the terms and conditions is beyond the legal requirement of CSR since acceptance is a confirmation of the offer and associated requirements. The contract should contain information on intention to create a legal relationship. It is premised on the quid-pro-quo or something in return. The “intention” should be viewed objectively and independent persons can arrive at the same conclusion. Smith v. Hughes (1871) LR 6 QB 597 is a leading case that discusses intention2. The emphasis is not the intention of the party rather an approach in which a reasonable person can view the situation. It is premised on the common sense in which each party has to comply with the contents of the contract. Woollen Mills Pty Ltd v The Commonwealth (1954) in Australia High Court held that a promise should be made “in return for” doing a given task3. The aim of the case is to indicate the aspects the forms a contract, which includes intention, offer and acceptance. Raj saw the offer online and saw the price which he paid. It means that the offer and acceptance were fulfilled and other contractual requirements were met. Therefore, Raj contract was valid. Formation of the contract is premised on terms and conditions meaning that any acceptance of the contract means the other party accept the conditions. The acceptance or formation of the contract can be verbal provided a given act occurred during the process. For example, Raj paid $600 for the services and participated in the paid services. It means both parties fulfilled their different objectives and legal requirements. The tools and equipment for skiing were availed while Raj utilised the tools and equipment. The payment was for Raj to obtain a service or product, which was entertainment and without considering the accident, the contract was valid because each party performed their respective roles and responsibilities. The capacities of the parties are important in making contractual decisions. The parties involved in contractual agreements should be competent. The purpose is to ensure either party have the capacity to contract else the contract is invalid. Some of the conditions in determining the incompetency of an individual include persons disqualified by law, persons of unsound mind, and miners. These regulations are aimed at ensuring the contractual parties understand the context and situation of the contractual agreements. Raj is a qualified individual because he was employed and also pursues education in a leading institution. CSR is a recognised organisation offering entertainment services. Therefore, either party are qualified and competent to enter contractual agreements. Based on the aspects of capacity and competency, the contract is valid. Free consent is another important element in determining the validity of a contract. The consent refers to the acceptance of the parties to specific terms and conditions in the same sense. Consent is said to be free when it is not associated with or caused by mistake, misrepresentation, fraud, undue influence and coercion. A contract should be signed between the parties by the free consent. Raj searched for information about the vacation and found an organisation, CSR, which offers the services and product. Within his own volition, Raj made payments and in the assigned period utilised the services. Raj has not complained that he was discriminated or did not receive his end of the bargain. The problem was the accident, and since fundamentals of free consent are visible in the engagement, the contract is valid. The object of the agreement or contract should be lawful from the legal perspective. The object in the current discussion is the design or purpose of the contract. For example, if the aim of an individual is to hire an apartment for prostitution, the object of the contract is to run a brothel. In such situation, a brothel may be unlawful based on jurisdiction but the analysis is the lawful object. The object is said to be against the law if it is fraudulent, against the legal framework, involves injuries, and against any law and or the court regards it as opposed or immoral to public policy. Resorts are licensed to offer services and products. The resort decided to create a product and service to target the customers, which are lawful. The entire discussions of the product and services are lawful and Raj entering into the contract is legal. Therefore, the contract is valid based on the nature of the product and services offered. The contract is valid because it has fulfilled the different requirements and fundamentals associated with creation and implementation of the contract. The essential components of a contract, which includes offer and acceptance, intention among others are clearly indicated in the agreement. Either of the parties implements the different requirements of their respective contractual requirements and obligations. However, the occurrence of the accident and fundamentals associated with the accidents are outside the agreement of the contract. B) Discuss the validity of the exclusion clause. Is he likely to be successful in a negligence claim against CSR? [10 marks] The exclusion clauses in numerous contracts are aimed at preventing a party being held liable in specified circumstances. The purpose of the clause is also to limit the liability of negligence. The validity of the exclusion clause dependents on legal requirements, clarity of the clause and property integrated in the contract. The exclusion clause should be indicated before the contract is entered or appropriate notice is presented. The appropriate notice can be constructive or actual but it depends on circumstances and situations. For example, the car park ticket that contains the exclusion clauses on the back is not valid. It is attributed to the fact that the exclusion clause was brought to notice after acquiring the ticket. Thornton v Shoe Lane Parking Ltd (1971) 1 All ER 686 discusses the requirements of exclusion clauses and the position of the clauses on the receipt or notice4. The exclusion clause should be visible and the party understands the nature of the exclusion clause. Raj never read the contract but the clause was contained in the contract agreement. It is presumed that an individual signs a document after understanding and seeking clarification on the content of the contract. Hence, the exclusion clause is valid in Raj’s situation. In Olley v Marlborough Court Hotel [1949] 1 KB 532, the notice of the information is important because it is used to make informed decisions5. The court case concluded that the information on exclusion clause should be clear and clarified before signing the documents. The decision for Raj to sign the document means that he understood the contents of the documentation and accepted the exclusion clause conditions. The validity of the exclusion clause should be contained in a contractual document and not on a document that acknowledges payments such as receipts. In L'Estrange v Graucob [1934] 2 KB 394, the plaintiff acquired a coffee machine from a defendant and signed a contract that was written in very small print but the machine did not work properly. The court stated that the defendants did not breach the terms of warranty because when a contractual document is signed in absence of misrepresentation and fraud, the individual who signed the document is bounded by its contents. However, aspects of negligence can occur because of presentation of some information in the contractual documents. For example, when a customer or party seeks for further clarification on a matter and the information is misrepresented, one of the parties is liable. In Curtis v Chemical Cleaning Co [1951] 1 KB 805, the plaintiff took a wedding dress for cleaning and when she asked for clarification on the nature of the contract, the attendant started that the contract exempted the cleaners from liability for damage to sequins and beads6. The wedding dress was returned stained and when the defendant wanted to raise the exclusion clause, the misrepresentation was enough to force the defendant to compensate the plaintiff. This is an example of a misrepresentation but in the case of Raj, the information was clear and did not seek for further clarification. Hence, the exclusion clause is valid based on the availed information. An exclusion clause that shields a party against liability for negligence will only be valid if the document contains clear information on negligence. The clarity of the clause is usually important and any ambiguous or unclear exclusion clause may be interpreted against the party relying on the clause. Part of the exclusion clauses contains “even if caused by the negligence of Coldham Ski Resort,” which clearly indicates that CSR shields itself from any actions of negligence. The argument by Raj that the company placed some rubbish bins near the exit is already covered because it has been clarified in the exclusion clause. The exclusion clause is valid based on the numerous case and common laws. The exclusion clause should be presented appropriately and clearly. The person signing the document should have noticed the exclusion clause and any further directive on the exclusion clause should be clarified. In clarifying the exclusion clause, misrepresentation should be avoided. The actions of negligence are contained in the exclusion clause and based on the current argument; Raj cannot seek compensation for negligence because the information is clearly presented. Even though the role of CSK is to encourage safety and conducive environment; such claims cannot be used to compensate Raj. Hence, Raj will not receive any compensation. C) Assuming he is successful in his claim, what do you estimate to be the quantum of damages? Raj wonders how to invest this payout. He knows that one of his fellow students’ mother (Jess) runs a financial advice firm Shark Financial (‘Shark’). He emails her for advice saying that he is her son’s friend and can she give him some investment advice. Jess replies “Lol, students don’t have any money. But if I wanted to invest my student millions I would buy shares in Shady Ltd (‘Shady’).” Raj buys shares in Shady and within weeks the company is in liquidation and he discovers he has lost all his money. What is the probability of a successful claim against Jess? [10 marks] In determining the quantum of damages, Murphy v Stone Wallwork (Charlton) Ltd [1969] 2 All ER 949 at 952, [1969] 1 WLR 1023, HL presents that balance of probabilities is the appropriate strategy for assessing and determining damages7. The aim is incorporating the current situations and expected a future loss. The certainty approach may be employed in determining the compensation but the mathematical accuracy requirement may raise additional complications. In Chaplin v Hicks [1911] 2 KB 786, CA, an actress was unable to present herself for an interview and filed the cases based on contractual agreements and the need to be given a second opportunity or compensation8. The court equates the compensation on the harm is equal to liability and equal to duty. Hence, a mathematical computation was employed in determining the compensation. The better evidence rule may be utilised in assessing and determining compensation. The aim is to employ a balance of probabilities in assessing the breach or negligence, or consequence of negligence. The amount compensated will depend on the evidence produced and weight of the evidence. The aim is to utilise the evidence to determine the appropriate amount of compensation that an individual may be given. In R v Kajala (1982) 75 Cr App R 149 presented that the best evidence rule can be refined to fulfil the changing requirements of operation9. All relevant evidence should be brought together without considering the badness or goodness in determining the weight and not the admissibility. The issue is clearly clarified in the Garton v. Hunter ([1969] 1 All ER 451, [1969] 2 QB 37) in which alternative approaches are proposed in determining the compensation10. In compensating Raj, the court will analyse both the financial evidence including the medical costs, loss of job opportunities and other challenges faced in the future. Jess, the financial advisor, can provide the information from a personal angle and professional perspective. The argument is that there is a relationship between Raj and Jess because of the Raj’s friend. In providing the advice, an aspect of the duty of care should be integral in the communication and engagement. The duty concept envisages the parties have a closeness or nearness in accomplishing a transaction. In Donoghue v Stevenson [1932] AC 562, Lord Atkin stated that an individual should take reasonable care in avoiding acts or omissions that can injure a neighbour or an associate11. Lord Atkin argues that the decision undertaken should reflect the requirements of closeness to avoid damage. Since there is an aspect of a personal closenesss because of the friend, Raj can claim compensation based on the advice. The duty of care may exist but in certain situations, ‘special relationship’ should be shown to improve the plaintiff argument on compensation. In Mutual Life & Citizens Assurance Co Ltd v Evatt (‘Mutual Life’), the stated that the plaintiff should have trusted the source of information before making any decision12. In Mutual Life, the plaintiff had requested information on the financial stability of a subsidiary branch. Mutual Life stated that the subsidiary was financial stable but was liquidated within after investment. The decision from the judges was that the aspect of duty involved the skills and professionalism of the giver. These different requirements are evident in the case of Raj and he can seek compensation. In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, Esanda entered into financial transactions with a third party company called Excel13. The information utilised was obtained from Peat Marwick Hungerfords (PMH) but PMH did not utilise effective financial analysis and prudence in the preparation of the documents. Esanda sued PMH stating that there was a relationship between the two firms. The court decided that minimal ‘special relationship’ existed but Esanda lost the case. The argument as that Esanda had to proof beyond reasonable doubt that the information presented by PMH incorporated the aspect of duty. Even if an individual has the right competency, skills and care, the argument is whether a relationship exists and whether the individual had the right to utilise the information or data presented. A financial advisor can be liable in negligence based on the information or advice provided during the course of employment. The liability is premised on whether a duty of care exists between the plaintiff and the defendant who claims to have suffered economic challenges because of the advice. In the existence of a contract, it is easier to indicate the presence of duty of care. However, it is important to determine the components of a contract and fundamentals associated with the enforceable contract. Raj utilised the statement of relationship based on his friend in seeking advice. Even though the two have never met, the aspect of friendship is enough to indicate the requirement of duty of care. In the case, the information provided involves advice on a third party, in this case, Shady Ltd, and Raj does not have a direct relationship or understanding with the financial advisor, the defendant is not liable. In these numerous situations, grey areas exist in which the courts have to determine whether a duty of care exists. The factors include associated assumption of responsibility, reasonable reliance, and any information that indicates reliance. The aspect of negligence liability depends on whether the actions of the defendant falls below the standard of care through the use of measurements against minimum regulations and professional standards, and whether the information presented was false. Based on the analysis of the cases and associations between Raj and Jess, it may be assumed Jess employed professionalism while engaging Raj. Even though no contract existed between the parties, Jess was required to provide credible information regarding the appropriateness of the investment. However, the investment was through the third party in which, Jess could not control nor have internal information. The probability of a successful claim against Jess is fifty-fifty because of presences of a relationship and the requirement to champion professionalism in providing the financial assistances. Nevertheless, the aspect of gain might be raised because Jess does not obtain any economic or financial benefit through providing the advice. Hence, the defendant and the plaintiff can present strong arguments in ensuring their aims are achieved. References Carlill v Carbolic Smoke Ball Company [1892] EWCA Civ 1 Chaplin v Hicks [1911] 2 KB 786, CA Curtis v Chemical Cleaning Co [1951] 1 KB 805 Donoghue v Stevenson [1932] AC 562 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 Garton v. Hunter ([1969] 1 All ER 451, [1969] 2 QB 37) Murphy v Stone Wallwork (Charlton) Ltd [1969] 2 All ER 949 at 952, [1969] 1 WLR 1023, HL Mutual Life & Citizens Assurance Co Ltd v Evatt Olley v Marlborough Court Hotel [1949] 1 KB 532 R v Kajala (1982) 75 Cr App R 149 Smith v. Hughes (1871) LR 6 QB 597 Thornton v Shoe Lane Parking Ltd (1971) 1 All ER 686 Woollen Mills Pty Ltd v The Commonwealth (1954) Read More