Legal Requirements for Contract Formation

Discuss About The Purchase Intention Actual Purchase Behavior?

An agreement that is enforceable in the court of law may be defined as a contract. The parties to a contract are legally bound by the contractual terms of the contract. A valid contract must include an offer, acceptance, consideration, legal intention, capacity and certainty. An offer commences the process of formation of a contract and the terms offered must be certain and specific in nature[1]. The person making an offer is called the offeror and the person accepting the offer is known as the offeree. A valid acceptance of a valid offer is essential to render a contract as valid and enforceable in the court of law. an offer should be accepted as per the terms proposed by the offeror and if the offeree incorporates any new or additional terms, it is known as counter-offer which invalidates the original offer.

An offer is said to be accepted if such acceptance is communicated to the offeror. Postal rule is an exception to this rule of communication of acceptance. It is considered as an alternative means of accepting an offer. According to the postal rule, when an acceptance of an offer is communicated by post, the acceptance is complete as soon as the letter of acceptance is posted and out of the control of the person posting such acceptance. This rule was established for the first time in Adam v Lindsell, where the court held that after the letter is posted, even if the letter is lost or misled, it should be considered as a communication of a valid acceptance.

In the modern era, with the advancement of technologies, majority of communications takes place by email, telex, telephone and other instantaneous means. The court held in Entores Ltd v Miles Far East Corporation [1955] that postal does not applies for instantaneous communications as the contract is complete where the acceptance is received by the offeror which unlike the postal rule as the responsibility is on the offeree to communicate the acceptance to the offeror effectively. Acceptance communicated through instantaneous mode of communication must be acknowledged which is not required under the postal rule where acceptance is communicated once the acceptance is posted. 

There is no specific legislation to determine whether email is an instantaneous communication mode to which general acceptance rule could apply. Internet and computers may take some time to respond[2]. With respect to the timing issues in electronic transactions, emails are treated differently, as compared to websites, which is considered as one of the modes of instantaneous communication and websites unlike email, relies on actual space and time between accepting and sending the contract.

Application of Postal Rule to Communication of Acceptance

Since email transactions involve failure and delays while sending and receiving the messages, parties do not enjoy instantaneous communication between each other as was observed in Chwee Kin Keong v Digilandmall.com Pte ltd [2005] SGCA 2. Therefore, postal rules should be applied for communication made through emails.  Since dispatch is a vital point to apply the postal rule in the context of email. Since acceptance is said to be valid once it is beyond the possession and control of the offeree under the postal rule, the acceptance message sent through email shall be considered to be beyond the control or possession of the offeree when the offeree connects to the computer and presses the sent button.

Once acceptance is communicated to the offeror the offerree cannot revoke the acceptance provided the revocation is communicated to the offeror before the communication of acceptance reaches the offeror.

In the given scenario, Lianne email Mary on 10 June, to organize a party for her and the Mary emails about the information related to the party along with the quote for $10000. Lianne proposes a lower price of $9500, which Mary approves with the condition that the reduced price offer shall remain open for seven days and 10% non-refundable deposit should be provided within the stiulayed time. Here, the original offer of $10000 made on 10 June becomes invalid as Lainne proposed a reduced price of $9500, which amounts to a counter offer. 

Further, if the offeror stipulates a particular time within which the offer must be accepted, the offeree is required to accept such offer within such stipulated time[3]. However, on the facts here, Lianne was required to accept the offer with reduced price within seven days from 10 June. However, Lianne failed to accept the offer within the stipulated time, which implies that the offer was revoked, and cease to be effective.

On 20 June, Mary offers that since Lianne failed to accept the offer of $9500 within 7 days, the price of the party is now $10000. Mary accepts the offer by sending a mail, thus, communicating her acceptance of the offer of $10000. As discussed in the Chwee Kin Keong’s case, email is not considered as an instantaneous communication mode owing to the absence of any legislation establishment regarding the time of dispatch and receipt because of which postal rule will apply under such circumstances.

According to the postal rule, an acceptance is said to have been communicated after it has been posted and it become out of the possession and control of the offeree[4]. Similarly, in case of an acceptance communicated by email, the message is said to be out of possession and control of the offeree, once the offeree connects the internet and presses the send button. Lianne communicated her acceptance of the offer of $10000 by mailing such acceptance to Mary, and the acceptance is said to be communicated as it was beyond her control or possession. It is established that a contract was formed between Mary and Lianne with a valid offer and acceptance made between each other.

Application of Australian Consumer Law to Consumer Protection

Thirty minutes after the acceptance was communicated, Mary mailed her revocation of the offer. However, such revocation of the offer shall not be considered as valid, as once an acceptance of offer is communicated to the offeror it cannot be revoked unless the communication of revocation reaches the offeror before the communication of acceptance.

In Australia, the Australian Consumer law (ACL), Schedule 2 to the Competition and Consumer Act 2010 has been enacted to safeguard the consumers rights with respect to goods and services obtained in relation to trade or commerce. The ACL sets out consumer guarantees that ensures protection of consumer rights with respect to the goods and services provided by the businesses[5].

According to section 61, the services specified for the purpose must be fit for such purpose and the consumer must have relied on such skill and statement made by the suppliers. According section 62, the services shall be supplied within the stipulated or reasonable time[6].

According to section 268 of the ACL, a failure to act in accordance with a consumer guarantee with respect to services is a major failure when such services are not fit for the purpose and such failure cannot be remedied within a reasonable time to make it fit for the purpose for which the consumer had obtained it. Further, the non-compliance would amount to major failure if the services were not of the nature, condition, state or quality as was promised by the supplier and was reasonably expected by the consumer. Furthermore, such failure cannot be remedied within a reasonable time to achieve the expected result[7].

The consumer is entitled to compensation for damages and loss from the suppliers in case the supplier has breached a consumer guarantee, which resulted in a major failure of the products and services.

In the given scenario, Lianne had entered into a contract with Mary for organizing a boat party for her friends. Mary promised Lianne that the cuisine she ordered for her party shall be provided which is Malaysian cuisine. However, Mary’s suppliers had provided Russian foods and the boat was congested and was not at all spacious as was promised by Mary. Consequently, Lianne found it very difficult to accommodate her guests and the musicians. Furthermore, there was no space for dancing and the food supplied was insufficient.

Here, Mary had failed to comply with the service that she promised Mary to provide and which was reasonably expected by Lianne from Mary. According to section 61, Mary was required to provide services that were fit for the purpose for which she was engaged by Lianne. Lianne wanted Mary to organize a boat party for her, asked her to arrange Malaysian cuisine, and wished to have some space for dancing[8].

Scenario Analysis

Mary failed to arrange Malaysian food and ordered Russian Food, which was insufficient, had finished, there was insufficient space for accommodating the guests, and no space for dancing, which establishes the fact that Mary had failed to comply with section 62 of the ACL.

Lianne can claim compensation for breaching her consumer guarantee protection, which is a major failure of services and cannot be remedied within reasonable time under section 268 of the ACL.

Most of the Australian Businesses use advertising for the promoting their goods and services. The advertisement is made through television, internet, print media or radio and it is imperative to ensure that such advertisements are published in compliance with the Australian Consumer Law (ACL)[9]. The Australian Consumer Law is laid down in the Schedule 2 of the Competition and Consumer Act 2010 that aims at safeguarding the consumers and ensuring fair-trading in the country. Selling and Advertisements practices have undergone rapid development and do not take place only through television or print media. It takes place through social media, email, online shopping sites and other search engines.

Businesses that use newspapers, radio, television and other online websites for advertising their products and services must not use misleading or deceptive statements[10]. The businesses are prohibited from making statements that are false or are likely to create false impression. Under section 18 of the Australian Consumer Law forbids businesses from engaging in conduct that is misleading and deceptive in nature. Misleading conduct in advertisements causes or is likely to cause harm to consumers by distorting the purchasing choice of the consumers. The businesses are prohibited from making false claims with respect to the style, quality, benefits, accessories, benefits, use, and exclusions of the goods and services that are advertised by the businesses.

Misleading or deceptive conduct in advertisements reduces competition in the market by making consumers demand products that does not possess the features that are promoted while advertising. It further leads to an increase in the expenses incurred by the consumers while they enter into contracts that are contrary to the interest of the consumers. It also increases the expenses incurred in search costs, which is ultimately wasted when the product does not include the features that was shown in the advertisement.

This rule has also been observed in the case Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013][11], where the High Court of Australia has confirmed the significance of section 18 that safeguards the consumers interests from the advertisements that are misleading or deceptive in nature. In this case, the court held that ‘headline advertising’ may also be considered as misleading or deceptive despite the presence of fine print disclaimer that qualified the representations in the headline statement[12].

The decision made in the TPG’s case, is a landmark decision which established that to determine whether an advertisement is deceptive and misleading under section 18 of the ACL, the impression conveyed by the advertisement in the circumstances it had been published or aired, should be taken into consideration. It cannot be determined by merely relying on the existence of technically correct information that is available to the customers who followed the advertisement or on the presumed fact that the consumers had background knowledge about the advertisement. The penalty stipulated for businesses that contravenes section 18 of the ACL by making false claims in the advertisements that are either misleading or deceptive or is expected to mislead or deceive the consumers, deters the offending behavior and such provision complies with the consumer purpose of the Australian Consumer law[13].

The Australian Consumer Law incorporates statutory provisions that prohibit persons from engaging into any form of unconscionable conduct that may affect the consumers as well as the businesses. As it is discussed above that advertising products or services by making false claims that tends to deceive or mislead the consumers about such products or services, it is also equally important to refrain from breaching any of the consumer guarantees stipulated by the ACL[14]. A failure to recognize the implementation of consumer guarantees with respect to contract and express exclusions shall amount to deceptive and misleading conduct, which attracts severe penalties. It is further evident from the case Trade Practices Commission v Radio World Pty Ltd [1989][15], where the court construed that a sign stating conditions of purchase was misleading and deceptive despite the fact that person who committed such breach was aware of the provision that prohibits misleading and deceptive advertisements[16].

From the above discussion, it can be inferred that the two most essential rules of advertising and selling that is stipulated under the Australian consumer law is that the seller or the businesses must not engage in any form of unconscionable conduct. The other essential rule is that their advertisements should be free from any form of false claims or statements that is misleading or deceptive or is likely to deceive or mislead it targeted audience. In order to determine whether a conduct is misleading or deceptive, it is necessary to consider what impact a business behavior has on its targeted audience. The impression of a good or services advertised on its targeted audience is essential to determine whether a particular advertisement had misled and deceived its audience.

Although a business is not required to disclose all information under every circumstances, but there are circumstances when it becomes important to provide relevant information with a view to avert in any engagements that is misleading or deceptive in nature. In the event, it is important to disclose any additional information with respect to the goods and services to the customers and its targeted audience. This becomes important when the seller and the businesses are aware of the fact that if such additional information is not provided, the conduct is likely to deceive or mislead the customers or the targeted audience. Further, when it is reasonably expected from the seller or business engaged in the sale of products and services to disclose such additional and relevant information to its customers, non-disclosure shall amount to misleading and deceptive conduct on part of the businesses.

Reference list

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