QUESTION
1. Margaret owned an antique store that specialised in rare porcelain dolls. When she
opened the business in 1989, it was at a shop in an eastern suburb of Melbourne. In 1999
she started to advertise on the Internet and by 2006 the business had grown to the point
where she needed help to keep the business going. After a family discussion one night at
the kitchen table in July 2006, it was agreed that Margaret would probably keep the
business going for another couple of years and then retire. Emily, her youngest daughter
and aged 16, would work in the shop as long as was needed and in return, she would
receive any unsold dolls. When Margaret retired at the end of 2009, she decided that she
would give the unsold stock to charity and they could auction it and keep the proceeds.
Advise Emily.

2. Richard, an impoverished university student, and his millionaire father enter into an
arrangement where Richard agrees that he will keep the front- and backyards of the
family property mowed, and he will ‘do a bit’ to keep the gardens looking tidy. In return,
his father agrees to pay him a weekly allowance of $200. His father had previously used a
garden contractor to do the job and paid him $350. They live on a one-hectare property,
and the mowing alone takes half a day a week. After four weeks, Richard’s father tells him
that he can’t afford to pay $200 a week. He says that Richard should be doing the work
for nothing, as it is the responsibility of the whole family to look after the property;
besides, he says, Richard is getting free board and lodging. Advise Richard.

3. Jenny received a circular from Beauty and the Beast Hair Salon advertising massages and
manicures for $10. Realising that this was an exceptionally good deal, but not surprised
because she knew that they had only just opened and were running a number of good
opening specials, she rang and made a booking. When Jenny arrived at the salon she was
told that there had been a mistake on the circular and it should have said $100. The
manager of the salon explained that this was still a good price because normally a
massage and manicure would have cost $150. Jenny was furious, as it had taken her 30
minutes to get to the shop by car and if she had known it would cost $100, she would
never have made the booking. Advise Jenny. Would your advice have been any different if
Jenny had the massage and manicure before being told that the cost was $100? Would
she have to pay the full price?

4. Bruce, while he was so drunk that he didn’t know what he was doing, bid successfully at
an auction for the purchase of a house. It was clear to the auctioneer that Bruce didn’t
know what he was doing. However, after Bruce sobered up he confirmed the contract
with the auctioneer. He then subsequently refused to complete the contract. Is Bruce
bound?
HA2022 Business Law, Tri 3, 2011

SOLUTION

Answer 1

Area of law:   Capacity to contract

Principles of law: The Contract Act states that a minor that is a person who has not yet attained the age of 18 years is incompetent to enter into a contract. Capacity is an essential ingredient of an enforceable agreement that means a contract to which one of the party is below 18 years of age is voidable and not enforceable in the court of law except to a few exception like (i) a contract for the supply of necessities to the minor, (ii) a contract for service or apprentice of the minor and (iii) a contract which is beneficial to the minor. In the matter of Nash v Inman (1908) 2 KB 1 minor had enough supply of clothes suitable to the condition he was in and any further supply of clothes to him by the tailor cannot be considered as a supply of necessaries. If the supply of clothes would have been for the necessities of the minor then it would have been considered as an obligation on the minor to for such supply of clothes.(Carter,2011)  In the case of Cowem v Nield (1912) 2 K.B. 412 the minor defendant was in the business of hay and straw and had agreed to supply clover and hay to the plaintiff.  The plaintiff made an advance payment but there was no supply by the minor and thus the action was brought against the minor by the plaintiff. The court of law held that the contract was beneficial to the minor but still he lacked the capacity to enter into a contract and thus he is not liable to pay to the plaintiff.  The contract by a minor is

Apply the law to the facts: When the family discussion took place wherein it was decided that Margaret will continue to work in the family business for another two years and later Emily will work till the time she wants to and in return she will get all the unsold porcelain dolls at that time Emily (Margaret’s youngest daughter) was 16 years of age. At the time of family discussion as in when the agreement took place Emily lacked capacity to enter into an agreement. Because of this incapacity now she cannot stop Margaret from taking the decision to give all the unsold porcelain dolls to charity for an auction.

Conclusion:  It can be advised to Emily that she cannot take any legal recourse against her mother as there was not an enforceable agreement between her and her mother Margaret because of her incapacity due to her age to enter into a contract.

Answer 2

Area of Law:  Intention to create a legal relationship.

Principles of law: In order to make an offer and acceptance to lead to a contract it is necessary that the offer made by the party is with a clear intention to create a legal relationship. Generally in the social and family relationships it is presumed that there is no intention to create a legal relationship unless it is specifically mentioned that the offer is with an intention to create a legal relationship between the parties. It is just the opposite in commercial contracts wherein intention to create legal relationship is presumed and if there is no intention to create a legal relationship it is required to be proved in the court of law. In the matter of Rose Frank Co. v Crompton & Bros. Ltd (1925) A.C. 445 it was provided in the contract itself that the agreement between the parties is based on mutual loyalty and friendliness and is not to give a legal status to the parties. Upon breach of a term of this agreement by one of the party the other party brought an action in the court of law and it was held that the agreement between the parties was not formal or legal hence is not enforceable. Further in the matter of Balfour v Balfour (1919) 2 K.B. 571 the wife could not accompany her husband to Sri Lanka and remained in England because of her physical health. The husband made a promise to his wife that he will continue to send her an amount of £30 from Sri Lanka every month for her maintenance in England but the husband failed to do so and his wife went to the court of law. The court held that in the agreements between husbands and wife or in any other relation it is presumed that there is no intention to create a legal relationship and hence the husband is not liable to pay her in accordance with his promise.(Gibson and fraser, 2009)

Apply the law to the facts: The relation of father and son is a close relation and it is presumed that any promise by one to another is just a promise and not an enforceable contract because of the lack of the intention to create a legal relationship. The arrangement between Richard and his father wherein it was agreed that Richard will keep the area around the house mowed and properly clean and for doing so he will be paid a weekly allowance of $ 200. Richard acted on this promise but father refused to him. This arrangement between father and son is purely non formal and non legal and hence cannot be enforced in the law of courts and thus Richard cannot claim $200 form his father for cleaning the area keeping it properly mowed.

Conclusion: Richard cannot claim money from his father to keep the area around his house clean and properly mowed as there was no enforceable contract between the two due to lack of intention to create a legal relationship.

Answer 3

Area of Law:  Invitation to treat

Principles of law: In an invitation to treat there is no actual offer to sell but just to inform the public about the prices and products through circulars catalogue etc so that offers can be invited from the public. If there is an invitation to treat and the other party offers to buy then it is up to the seller to accept or reject the offer and it is only upon acceptance of the offer that a contract arises between the two.(Lambiris,2011) For example, when a book seller circulates catalogue of books available with him along with their price, it is just an invitation to treat and the person seeing the catalogue can order the books making an offer to buy them but now it is on the seller whether to accept the offer to buy books or not at that price. In the matter of Harris v Nickerson (1873) L.R. 8 Q.B. 286, the plaintiff saw a sale notice through auction and travelled to the auction site on the mentioned date. When he reached the auction site he came to know that the auction has been cancelled. He filed a case in the court of law claiming his travel expenses to the place of auction from the defendant. The court held that the auction sale notice was an invitation to treat and not an offer hence there is no contract between the parties and the plaintiff cannot claim travel expenses from the defendant. In the matter of Harvey v Facey (1893) A.C. 552 plaintiff was in interested in buying the Bumper Hall Pen a plot of land owned by the defendants and thus wrote a telegram to the defendants asking the lowest price of the land and if the defendant is interested in selling it. The defendant in their reply just mentioned the price as £900 and nothing else. Upon receipt of this reply plaintiff wrote another telegram stating that he is willing to buy the land at that price. The court in this matter held that mere quoting of the price is not an offer to sell but just an invitation to treat and hence there was no contract between the parties.

Apply the law to the facts: Jenney made a booking with the Beauty and Beast Hair Salon based on the price mentioned in the circular which is just an invitation to treat. When she reached Beauty and the Beast Hair Salon she came to know of the real price of the massage and manicure which was $ 100 and not $10 as mentioned in the circular. The quoting of the price by the salon to Jenney is an invitation to treat and now it is up to Jenney to make an offer to avail their service at that price or not. Before her offer to get the massage and manicure done could be accepted at $10 she came to know of the real price and hence there is no contract between the parties by merely making a booking based on price mentioned in circular. If she chooses to get the massage and manicure done then she need to pay $100 and not $10 to the Beauty and Beast Hair Salon. If in case before her knowing the real price of $100 she would have been provided services of massage and manicure by the salon then in that case salon had accepted her offer to give her services at $10 and thus arises a contract between the two as there is both offer and acceptance and Jenny need to pay only $10 to the salon for her massage and manicure.

Conclusion: The circular of the salon is just an invitation to treat and there is no contract between Jenny and the Salon hence she needs to pay $ 100 if she gets massage and manicure done at the salon. In another situation if she gets massage and manicure done without knowing the real price $100 then she needs to pay only $10 as there is both an offer and acceptance giving rise to a contract between Jenny and the Beauty and Beast Hair Salon.

Answer 4

Area of Law:  Incapacity to contract – Intoxication

Principles of law: Intoxication is almost equal to insanity in the eyes of contract law as in both the cases the person is not in a position to take a sound judgement on the terms of the contract. A person who is habitually drunk cannot take intoxication as defence unless he can prove that at the time of the execution of the contract he was so drunk that failed to understand the terms of the contract.(Vermeech and Ledger ,2011) The contract entered when the person is under the influence of alcohol it is considered as a voidable contract at the option of the intoxicated person. When the temporary disability ends and person comes to his senses to understand the contract he can accept it or reject it. Upon such acceptance he becomes bound by the contract. In the matter of Blomley v Ryan (1954) 99 CLR 362 when the contract was entered between Blomley and Ryan at that time Ryan was 78 years old and was intoxicated. When Ryan sobered up he refused to accept the contract and on such refusal this matter went before the court. The court came to the conclusion that at the time of the execution of the contract due to intoxication, even if voluntary, Ryan could not understand the terms of the contract and thus the contract between Blomley and Ryan cannot be enforced.

Apply the law to the facts: At the time of the bidding for the purchase of house Bruce was drunk and the auctioneer was aware of his situation. Bruce became the highest bidder and in his drunken condition only signed the agreement; this contract is not enforceable as Bruce was not in a position to understand the terms of the contract. When he became sober and accepted the contract at that time he becomes bound by the contract because he is doing after knowing the terms and implication of the contract and is now bound by it.

Conclusion: It can be concluded that Bruce is bound by the contract as he has accepted it when he became sober the next day upon his temporary disability due to intoxication ceased.

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References

1. Carter, J 2011, Carter’s Guide to Australian Contract Law 2nd edn.
2. Gibson, A & Fraser, D 2009, Business Law 4th edn.
3. Lambiris, M  2011, First Principles of Business Law  Sydney: CCH Australia
4. Vermeesch, R & Lindger, K 2001, Business Law of Australia 10^th Ed.

5.Julie Clarke 2012, Australian Contract Law, viewed on 23^rd may 2012, www.australiancontractlaw.com/law.html

Cases laws

1. Balfour v Balfour (1919) 2 KB 571
2. Blomley v Ryan (1954) 99 CLR 362
3. Cowem v Nield (1912) 2 K.B. 412
4. Harris v Nickerson (1873) L.R. 8 Q.B. 286
5. Harvey v Facey (1893) A.C. 552
6. Nash v Inman (1908) 2 KB 1
7. Rose Frank Co. v Crompton & Bros. Ltd (1925) A.C. 445

Others

1. www.austlii.edu.au/au/cases/
2. www.australiancontractlaw.com/law.html

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