Offer and acceptance in contract law

Can Qantas Airlines Ltd (Qantas) claim compensation from Airbus Corporation Ltd (Airbus)

A contract must have an offer and a valid acceptance to be enforceable in the court of law. In Harvey v Facey [1893], the court observed that the parties to the contract must have intention to become legally bound by the contract. The offeree must accept the terms of the offer made by the offeror and after the contract is formed, the parties become legally bound by the contract whether or not the parties have read the terms of the contract as was observed in Riches v Hogben [1986]. The offeree must accept the terms of the contract as it was offered by the offeror without incorporating any additional terms (McKendrick, 2014).

In Hyde v Wrench [1840], the court ruled that the terms accepted by the offeree must match with the terms made by the offeror. In case, any additional terms is incorporated in the contract, the original contract shall cease to be in effect as the inclusion of the new term would make the offer as counter offer, invalidating the original offer. The contractual liability of either parties to the contract may be restricted by incorporating an exclusion clause and for a contract to be valid, it does not have to be expressly signed. An acceptance of an offer in any form would amount to a valid offer provided the acceptance is made in relation to the terms proposed by the offeror as was observed in Chapelton v Barry Urban District Council [1940] KB 532. 

If an additional term is being included in a contract, which is otherwise not, expected to be included in a contract, the party incorporating the additional term is obligated to notify the other party about the inclusion of the term in the contract as was ruled in Causer v Browne [1952]. In case, the party incorporating a new term in the contract does not inform the other party about such inclusion and the inclusion of the term affects the other party adversely, the term cannot be considered as a valid contractual term as held in Thornton v Shoe Lane Parking Ltd [1971]. 

A warranty may be defined as a term in a contract that disallows the aggrieved party to severe from the contract or exempt from the contractual liability. A warranty does not form an essential contractual term because a warranty does not form the subject matter of the contract. In the event, either party fails to comply with the warranty stipulated in the contract, the aggrieved party shall become entitled to claim compensation for the damages suffered by the aggrieved p[arty due to the loss arising from such contractual breach (Poole, 2016).

Incorporation of exclusion clause

A conduct may be defined as a contractual term which if breached by either parties, the aggrieved party is entitled to repudiate the contract immediately and claim compensation from the breaching party for the losses sustained due to such breach of the condition. In the event of infringement of a contract, the aggrieved person is entitled to claim damages from the breaching party and the court grants such damages in the form of compensation (Andrews, 2015). The court determines the amount of compensation with a view to restore the position of the parties as it was before the contract was violated.

In the given scenario, both Qantas and Airbus airlines have agreed on 545 terms that has been incorporated in the contract, which denotes formation of a contract between the parties as the agreement between them implies the presence of a valid offer and acceptance. Therefore, the contractual terms are legally binding upon the parties. Airbus provided several documents to Qantas, which included liability clause that was not included in the original contract, which restricts the liability of Airbus airlines to $300000. As stated above, an exclusion clause may be incorporated by either party to the contract.

Nevertheless, as observed in Causer’s case, incorporation of additional terms must be notified by the party including it to the other party. Here, Airbus should have notified about the exclusion clause to Qantas Airlines, hence, it cannot be considered as valid notice as it had nkt been brought into the notice of the Qantas airlines.

Further, the subject matter of the contract was to provide a plane to Qantas with good quality accessories, which include video systems having 36 channels, but Airbus provided only 34 channels owing to a technical failure. This amounted to a breach of warranty as the breach as related to the subject matter of the contract which entitles Qantas airlines to claim compensation from the Airbus airlines. Although the loss suffered by Qantas is more than $300000 and a new system is to be installed within a week, Airbus is entitled to pay damages for incorporating exclusion clause, which becomes invalid for not notifying Qantas airlines about the inclusion.

Conclusion

If the damages sustained by the Qantas airlines are more than the stipulated amount, it may claim compensation over $300000.

To determine Frank’s legal status in the given scenario

In Edgington v Fitzmaurice [1885], misrepresentation was defined as false statements made to convince a person to enter into contract and misrepresentation differs from puffery. Puffery is mere exaggeration of statements or praising that has no legal significance. In Hill v Rose [1990] the court ruled that a claim against puffery cannot be made but a misrepresentation claim can be established if it is proved that, a person has made false statements to induce the individual to enter into a contract. Fraudulent misrepresentation refers to the situation where the person making false statement is aware that the statement made is false in nature, under such circumstances, the aggrieved person may claim compensation from the person making fraudulent misrepresentation (Smits, 2017).

Breach of warranty and entitlement to claim compensation

Now, agency is another form of contract where a person authorizes another person to act on behalf of the person authorizing. The person who authorizes is known as principal and the person who is authorized is known as the agent. In Pioneer Mortgage Services Pty Ltd v Columbus Capital Pty Ltd [2016], the court held that the principal is bound by the actions of the agent provided such actions takes place within the employment course and under the express or implied authority by the principal.

The court further held in Croper v Cook [1867], that even if the principal, but the third party does not authorize the agent believes the agent to be an authorized person, the actions of the agent under such circumstances would bind the principal as the agent shall be considered to be under implied authority while dealing with the third party.

In Watteau v Fenwick [1889] 14 App Cas 3, if any third party is not aware of the fact that an agent is not under the authority to deal on behalf of the principal, and such third party enters into contract with the agent under such belief, the principal shall be held responsible for the actions of the agent.

In the given case, Gamma is employed under Frank and works as a sales person in Frank’s appliance shop. A second hand dishwater worth $350 is placed at the shop and a customer Tom wished to buy the dishwater, hence, he stated that he would inform Gamma whether he could buy the dishwater at $350. Gamma was aware that her niece Frances wanted dishwater and informs her about the same and offered $300 for it. She convinced Frank that the second dishwater can never be sold at $350, hence, he should agree to sell it for $300 to Frances.

Here, it is clear that Gamma induced Frank into agreeing to sell the dishwater at lower price to Frances by providing him with false statement with respect to the dishwater and Gamma was well aware of the fact that she was providing false statements. Later, Tom tells Frank that he could have bought it for $350 which implies that Gamma had induced Frank to enter into a contract by making false statements and is liable for committing fraudulent misrepresentation. Under such circumstances, frank is entitled to claim $50 as compensation from Gamma as was observed in Edgington’s case.

Misrepresentation in contract law: Distinction from puffery and fraudulent misrepresentation

In the subsequent scenario, Bob is another salesperson who is employed under Frank and is in charge for selling washing machines in the appliance shop. Bob has been dealing with Angela most f the times as she owed a laundry chain. Frank suspended Bob as he used to come late at work and was often came to work drunk, thus, was callous towards his work in the shop.

After suspending Bob, Frank did not make sure, whether Bob had actually left the workplace and he went to attend a meeting. Bob enfettered into a contract with Angela with respect to the sale of washing machines. The subject matter of the contract was to sell 10 washing machines worth $1000 each. Angela transfers $1000 in Bob’s account with respect to the contract entered between them.

Here, at the time of entering into a contract with Bob, Angels was not aware of the fact that Frank suspended Bob and that he had ceased to act on behalf of Frank as agent. Angela often had dealings with Bob with respect to the sale of washing machines so she had no knowledge about the fact that Bob did not have the authority to enter into contract on behalf of his principal or employer Frank.

As per the rulings in the Watteau’s case, if any third party enters into a contract with any agent with te belief that the agent is authorized to enter into contract on behalf of the principal, the principal shall be bound by the actions of the agent. The principal shall be bound by the contract irrespective of the fact that the agent had knowledge that he was not authorized to enter into such contract with the third party. As was observed in the Croper’s case, if the third party enters into a contract with the agent who has no authority to enter into a contract, the agent shall bound the principal by his actions and such authority is considered as implied authority.

Under the circumstances of the scenario, Frank is bound by the contract entered into between Bob and Angela and Frank is liable for delivering the washing machines to Angela. However, Frank is entitled to claim compensation from Bob for the loss sustained by him.

Reference List

Andrews, N. (2015). Contract law. Cambridge University Press.

Causer v Browne (1952) VLR 1

Chapelton v Barry Urban District Council (1940) KB 532

Edgington v Fitzmaurice (1885) 29 Ch D 459

Hill v Rose [1990] VR 129

Interphoto Picture Library v Stiletto Visual Programmes Ltd (1988) 2 WLR 615

L’Estange v Graucob (1923) 2KB 394

Lockhart v Osman [1981] VR 57

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

Poole, J. (2016). Textbook on contract law. Oxford University Press.

Riches v Hogben [1986] 1 Qd R 315

Smits, J. M. (Ed.). (2017). Contract law: a comparative introduction. Edward Elgar Publishing.

Thornton v Shoe Lane Parking Ltd (1971) 2 QB 163

Watteau v Fenwick [1983] 1 QB 346