Offer and acceptance in Contract Law

Key issues:

• Whether the forty customers can legally enforce Ming to give them a haircut for $10 based on the advertisement?
• Whether other ten customers can enforce the contractual terms on Ming when they do not bring the advertisement with them to the shop?
• Whether Ming has a legal obligation towards those fifty customers to comply with his promise?
• Whether Ming has terminated the contract by putting up a sign in his shop?

A contract constructs a legal obligation between parties based on which they are bound by its terms. In case a party breaches the terms of the contract or did not comply with them, then the aggrieved party has the right to enforce the terms on the breaching party. However, this remedy is only available in case the contract is valid which is formed after the fulfilment of certain terms (Fitzpatrick et al., 2017). Firstly, an offer is made by the offeror to which after acceptance becomes a valid contract. The key element of an offer is that it has the authority to bind the offeror into its terms as provided by the court in Harvey v Facey (1893) UKPC 1 case. While evaluating whether a valid offer is made, it is important for the parties to differentiate the offer from an invitation to treaty. In Partridge v Critenden (1968) 2 All ER 425 case, the court provided that the advertisements are considered as an invitation to treat rather than a valid consideration (McKendrick, 2014). However, Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256 is a leading case in which the court provided that an advertisement can be constituted as a valid offer if certain elements are fulfilled.

In this case, an advertisement was posted by Carbolic Smoke Ball Company in which the corporation provided that it will pay a reward of £100 to the person who used the ball of the company for three times a day and still gets influenza. In order to show its sincerity, the company deposited a sum of £1000 in the bank (Turner, 2014). Mrs Carlill used the ball and still gets influenza, but, the company rejected his rewards. She filed a lawsuit against the company to recover her reward money. The company argued in the court that the advert was a mere sales puff and it is not possible for a party to make an advertisement to the whole world. Moreover, the company also argued that the acceptance was not communicated and the consideration was not present in the case. The court provided in its judgement that Mrs Carlill has the right to claim the reward money from the company. The court provided in its judgement that the company deposited £1000 in the bank which proves that the advertisement was not a mere sales puff (Kadir, 2013). Moreover, it was held that it is possible for parties to make an offer to the entire world.

Types of companies in Australia

The court provided that it was a unilateral contract in which the parties are not required to communicate their acceptance. The consideration of the contract was the payment made by Mrs Carlill to purchase the ball. A unilateral offer cannot be revoked unless performance has begun; it can only be revoked once the performance has not begun or not completed within a reasonable time (Hough and Kuhnel-Fitchen, 2017). The acceptance must be communicated by the offeree to the offeror within appropriate time in which the offer is effective, and silence did not consider as valid acceptance as given in Felthouse v Bindley (1862) EWHC CP J35 case. Another key element of a contract is the availability of a valid consideration which is referred as the bargain of the contract. In Chappell v Nestle (1960) AC 87 case, it was held that the court did not focus on whether the deal made in the contract is good or bad; the consideration must be sufficient, and it need not be adequate. The parties forming the contract must be competent to form a legal relationship which means that should not be a minor, insolvent or unsound mind person. The intention of the parties is also necessary to be present in order to form a contract; therefore, the agreement formed in social settings did not form a contract as given in Balfour v Balfour (1919) 2 KB 571 case (Fitzpatrick et al., 2017).

In the given case study, the advertisement made by Ming is considered as a unilateral offer which is made by him to the entire world. Customers can accept such offer by complying with the instructions given in the advert, thus, Ming is liable as per the terms of such offer. The forty customers who come to Ming’s shop for a haircut with the advertisement has complied with the instruction, thus, Ming is liable towards them since a contract is formed as discussed in the case of Carlill v Carbolic Smoke Ball Co. Other ten customers who have visited the store without bringing the advertisement did not comply with the terms, thus, they cannot enforce Ming to give them a haircut. A contract is formed between parties who have complied with the terms given in the advertisement posted by Ming, thus, Ming cannot argue that the amount is insufficient as discussed in Chappell v Nestle case. Lastly, Ming cannot terminate the offer by putting up a sign in his shop. The offer can only be terminated if the performance is not started by parties or it is not completed within a reasonable period of time. Thus, Ming should post another advertisement in which he specifies the period of such offer to notify the public that such offer will end in certain time.

Small Proprietary Companies

Conclusion

In conclusion, the forty customers have the right to enforce Ming to give them a haircut for $10 since a valid contract has formed between them. Other ten customers did not have the right to enforce Ming since they did not comply with the instructions. Ming cannot comply with his promise by relying on the fact that the consideration is insufficient. Lastly, the offer cannot be terminated by putting up a sign in the shop.

Key issues:

• What type of company would be registered with ASIC?
• What till the category of the company will be at the end of its first financial year?
• Whether the company will remain in the same category after five years?
• Whether ‘Anzac Coffee’ can be set as the company’s name?

The selection of the type of company is a relevant decision because each type has a separate legal structure which they have to comply with while managing their operations. The Corporations Act 2001 (Cth) provides various provisions regarding governance of companies in Australia. Section 112 of the act provided that there are two types of companies in which the promoters can choose between which include public company and proprietary company (Austlii, 2018).  The public companies have the ability to list their shares on the stock exchange and use them to collect funding from the public. However, the legislative regulatory framework of the public corporations is complex than compared to proprietary companies. As per section 45A the act, the proprietary companies in Australia are defined as both large and small. Subsection 1 of the act provides that the proprietary company can be limited by shares or be an unlimited company (Fitzpatrick et al., 2017). The corporation cannot hire more than 50 non-employee shareholders in the organisation. Subsection 2 of the act provides that a proprietary company be considered as a small proprietary corporation if in a financial year the organisation satisfies two of the following elements (ASIC, 2018a). Firstly, the company must have consolidated revenue of less than $25 million in a specific financial year. Secondly, the value of the consolidated gross assets of the company must not have more than $12.5 million in a particular year.

Thirdly, the company must not hire more than 50 employees to manage its operations in a financial year. The small proprietary corporation is not required to lodge annual financial reports, and it enjoys more flexibility in the legal framework. Subsection 3 of the act provides that a proprietary company be considered as a large proprietary company if two of the following elements are fulfilled in a financial year by the enterprise. Firstly, the consolidated gross operating revenue of the enterprise must be $25 million or more in a financial year. Secondly, the value of the consolidated gross assets of the company should be $12.5 million or more in a particular year. Thirdly, the corporations should hire 50 or more employees in a specific financial year. Subsection 5 of the act provides that while counting the employees of the company, the part-time employees are considered as full-time employees in a particular year (Legislation, 2018). While registering the name of a company, the parties are required to determine the availability of a particular name. Promoters can visit the website of ASIC to check the availability of a particular name which they wanted to choose for their organisation. If the result on the screen shows the name in green colour, then it means that the name is available. In case it is showing in amber colour, then the ASIC will need to review such name before granting the same. If the red colour is showing, then the name is not available (ASIC, 2018b).

Large Proprietary Companies

The promoters have to decide in order to determine the type of company which they wanted to form while registering it. They have to decide between a proprietary company and a public company. In this case, the choice of a proprietary company is more suitable option than compared to a public company. The proprietary company offers more flexibility and privacy, whereas, the public company enables in accumulating capital by issuing shares in the public and it did not have restrictions on the number of members. On the other hand, it is difficult to manage and operate a public company since its legal structure is more complex and costly. For example, it has to hold meetings, submit annual financial reports and it is more regulated than compared to a proprietary company. Thus, while applying to register with ASIC, the choice of forming a proprietary company is a suitable option. In this option, the membership will be restricted to the family members by introducing a constitution in the organisation which is not allowed in case of a public enterprise. The ideal option is to run the operations of the company as a small proprietary company which is established by complying with two of the three criteria given under section 45A of the Corporations Act.

In this case, the company’s revenue will be less than $25 million, and assets will be lower than $12.5 million. The number of employees will be less than 50 as well. Thus, the company comes under the category of a small proprietary company at the end of its first year. It did not have to lodge annual financial reports or hold regular meetings. After five years, the company grows which result in expanding its membership, assets, and revenue. Thus, the company cannot remain in the same category as a small proprietary company, and it will become a large proprietary company. The number of employees will increase more than 50, revenue will exceed $25 million, and the assets will be worth more than $12.5 million. Thus, the company has to lodge annual reports, comply with accounting standards, appoint an auditor and comply with other reporting requirements which are imposed by the Corporations Act. The name of the company ‘Anzac Coffee’ is showing in amber colour, which means that ASIC will think upon the name granting after the application made by the applicant. Thus, forming a company with the name ‘Anzac Coffee’ is subject to the prior approval of ASIC.

Conclusion

In conclusion, a proprietary company is a suitable form while applying for registration with ASIC. In the first year, the company will be categorised as a small proprietary company, and it will change its category after five years and become a large proprietary company. The name ‘Anzac Coffee’ is subject to the prior approval of ASIC.

References

ASIC. (2018a) Are you a large or small proprietary company. [Online] Available at: https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-reports/are-you-a-large-or-small-proprietary-company/ [Accessed on 5^th September 2018].

ASIC. (2018b) Business name availability. [Online] Available at: https://asic.gov.au/for-business/registering-a-business-name/before-you-register-a-business-name/business-name-availability/ [Accessed on 5^th September 2018].

Austlii. (2018) Corporations Act 2001 – Sect 112. [Online] Available at: https://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s112.html [Accessed on 5^th September 2018].

Balfour v Balfour (1919) 2 KB 571

Carlill v Carbolic Smoke Ball Co (1893) 1 QB 256

Chappell v Nestle (1960) AC 87

Corporations Act 2001 (Cth)

Felthouse v Bindley (1862) EWHC CP J35

Fitzpatrick, J., Symes, C., Velijanovski, A. and Parker, D. (2017) Business and Corporations Law. 3^rd ed. Chatswood, NSW: LexisNexis Butterworths Australia.

Harvey v Facey (1893) UKPC 1

Hough, T. and Kuhnel-Fitchen, K. (2017) Optimize Contract Law. Abingdon: Routledge.

Kadir, R. (2013) Rules of advertisement in an electronic age. International Journal of Law and Management, 55(1), pp.42-54.

Legislation. (2018) Corporations Act 2001. [Online] Available at: https://www.legislation.gov.au/Details/C2018C00275 [Accessed on 5^th September 2018].

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

Partridge v Critenden (1968) 2 All ER 425

Turner, C. (2014) Key Cases: Contract Law. Abingdon: Routledge.