INTRODUCTION TO BUSINESS LAW
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There are three (3) questions and all questions must be answered. This assessment task contributes
30% of your final grade. The questions are not equally weighted. This assessment task is based upon the
content covered in Weeks 4 and 5 (Contract law).
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Question 1
A valid contract should satisfy all legal aspects which include: offer and acceptance, the
contractual capacity of the parties, consideration, and legality of the contract. 1 For an offer to be
valid, it should be made by the offeror then the offeree should accept it. The parties should have
the capacity to enter into contractual agreements in regards to age and sound mind. In addition,
there must be consideration in terms of a promise of money for goods or services to be delivered.
A contractual agreement becomes binding when the offeree accepts the offer. An offer must be
accepted by the offeree as it is, if anything in regards to the terms of the contract is changed, then
it amounts to a counteroffer. An offer is made when the offeror expresses his intention to enter
into a contractual agreement on particular terms, with the aim of making the terms presented
binding immediately the offeree accepts the terms. There are different forms in which an offer
can be communicated such as conduct, email, fax, newspaper, and letter.
1 Anson, William Reynell, Jack Beatson, Andrew S. Burrows, and John Cartwright. Anson’s law of contract. Oxford
University Press, 2010.
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Acceptance occurs when the offeree indicates that they are ready to bind themselves to the terms
and conditions stipulated in the offer. For the acceptance to be effectual, it must be equivocal,
implying that the contractual partners need to accept the terms of the contract as presented. In
Powell v Lee (1908) 99 L.T. 284, the court was of the view that communication of acceptance is
paramount to the validation of a contract. In the case where acceptance is communicated, but
there is no meeting of the minds, then no contract will be deemed to exist. 2 This will be contrary
to the mirror image principle which requires the offer to be accepted just as it is. Thus, when the
offeree presents different conditions to those presented by the offeror, this amounts to a
counteroffer, leading to the nullification of the previous offer. Accordingly, if the offeree accepts
the original offer, but with additional qualifications or conditions, this also amounts to a
counteroffer and it’s not binding to the other party unless they accept the additional conditions. 3
In the case scenario, it can be implied from the facts that the parties were in a legal capacity to
enter into a contractually binding agreement. Dorothy made an offer to Brian for the sale of her
house ‘Gum Leaves’ at a price of $2,000,000. However, Brian’s response was that he would buy
the house at $1,500,000 and in four instalments over a period of two years. In this case, Brian
made a counteroffer. He did not accept the offer as was made by Dorothy. Dorothy’s response to
Brian’s counteroffer was in line with the mirror image principle because it was exactly as the
original offer made by Brian. She accepted to sell ‘Gum Leaves’ to Brian in four instalments as
offered by Brian. This created a binding contractual agreement between Dorothy and Brian. The
contract came into force the moment Dorothy accepted the counteroffer made by Brian.
2 Furmston, Michael Philip, Geoffrey Chevalier Cheshire, and Cecil Herbert Stuart Fifoot. Cheshire, Fifoot and
Furmston’s law of contract. Oxford university press, 2012.
3 Uniform Commercial Code (UCC) Sec. 2-207
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With regards to Lionel’s scenario, Lionel also made a counteroffer because he offered to buy the
house at $1, 750,000 and not $2,000,000 as originally offered by Dorothy. Dorothy, on the other
hand, responded to Lionel by accepting the counteroffer but with an additional condition that the
contract could only be binding if it was drawn up in a form that was acceptable to her family
solicitors. Thus, there was no valid contract between Lionel and Dorothy, and Lionel was not
liable for breach of the contract through his action of revoking the offer. It is possible for an offer
to be revoked by the offeror before communication of acceptance.
In conclusion, there is a binding contract between Dorothy and Brian for the sale of “Gum
Leaves” at $1,500,000 and in four instalments at a period of two years, whereby the failure of
Dorothy to fulfill her part of the contract leads to breach of the contract.
Question 2
Under contract law, a contract comes into existence the moment the offeree accepts the terms
and conditions of the offer. 4 In the case scenario, an agreement was made between Emily and
Rachel for the sale of Fang to Emily for $3,000 in two instalments of $1,500 each. A contract is
valid if there is consideration between the parties. Consideration refers to the promise to fulfill a
particular obligation upon payment of a certain specified sum of money. 5 Rachael gave out her
dog to Emily basing on Emily’s promise to pay $3,000. Thus, the two parties entered into a
binding contractual relationship, the breach of which leads to legal consequences.
With regards to the issue of whether or not the dog was even tempered, this was not part of the
contract in the express sense. Although there are implied terms with regards to merchantability
4 Lopez v. Charles Schwab & Co., Inc., 118 Cal. App. 4th 1224 (2004).
5 Smith, Stephen A., and Patrick S. Atiyah. Atiyah’s Introduction to the Law of Contract. Oxford University Press,
2006.
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of contractual goods, the issue of a dog’s tempers is tricky because it is not possible to
objectively determine Rachael’s liability on the ground that she promised that the dog was even
tempered. The objective test for determining the extent to which a contractual term is binding to
the party that makes it is based on how a reasonable bystander could interpret the issue of a dog’s
tempers. It is likely that when Rachael sold the dog to Emily, it was even tempered. This is
because dogs usually change their tempers depending on different circumstances and
environments. In addition, Emily had not stipulated such a condition as to temperament during
the time at which the parties were entering into the contract. Thus, Emily is still required to
fulfill her part of the bargain by paying off the remaining instalment of $1,500.
Question 3
This question addresses the issue of avoidance of liability using disclaimers. 6 In general, contract
law supports the aspect of freedom in contractual dealings and aims at allowing parties to make
their own choices in regards to allocation of the risk associated with the particular contract in
which they are entering. Thus, courts basically try to ensure the enforcement of the terms of the
contract decided upon by the parties. Section 2-719 of the UCC provides for the freedom of
parties to ensure that remedies and consequential damages are limited as much as possible.
However, a contract may be invalidated if a clause is found to be unconscionable in the sense
that it has elements of one-sidedness, oppression, and harsh agreement.
An exclusion clause can be included in a contract for purposes of putting a limitation on the
liability of a party of breach of contract or negligent conduct. However, reliance on such a
6 Perillo, Joseph M., and John D. Calamari. Calamari and Perillo on contracts. West Academic, 2009.Treitel,
Guenter Heinz. The law of contract. Sweet & Maxwell, 2003.
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contract will only be successful if the clause was incorporated into the contract and it can be
interpreted to mean that the clause covers the loss in question.
With regards to incorporation, an exclusion clause can be included in a contract through the
‘course of dealing,’ signature or notice. Where a notice is given in regards to the exclusion of
liability of a party to the contract, the notice should be made known to the other party. The notice
should be displayed at a conspicuous place where the other party can see it and become aware of
it before taking up the risk. In addition, if the notice is on a piece of paper, and it is written in
small letters to the extent that the other party cannot see, such an exclusion clause is not binding.
This is because there is no meeting of the minds between the parties involved in the contract. At
least for a contract to be binding to the parties involved, there must be mutual agreement with
regards to what these parties are entering into.
In addition, a party cannot avoid liability for gross negligence on the ground that the claimant
foresaw the consequences of their actions. The court interprets disclaimers and exclusion clauses
in a manner that ensures that they are not one-sided and oppressive to one party. The court’s
interpretation aims at determining whether the disclaimer indeed covers the breach that has taken
place. The main approach followed by the court is that exclusion of liability only occurs where
clear words have been used. This implies that in case of any ambiguities in the disclaimer, the
court applies the contra preferentem rule whereby the disclaimer is construed against the party
that drafted it. 7 In addition, the court may still hold the party relying on the disclaimer liable
where the disclaimer indicates inconsistencies or repugnancy to the major purpose of the
contract. Furthermore, under common law, it is not possible for a party to exclude or restrict a
fundamental breach in whatever situations because this results into unfairness. 8
7 Koffman, Laurence, and Elizabeth Macdonald. The law of contract. Oxford University Press, 2010.
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In the case scenario, it is evident the ferry company included a disclaimer on the ticket given to
Phillip. Phillip had used the ferry on a previous occasion, but in both instances, he did not see the
disclaimer placed on the ticket. Due to the fact that the court will interpret the disclaimer in line
with the contra preferentem rule, it will find that the ticket was first written on the reverse side,
meaning that it could not be easy for the party purchasing a ticket to see it. In addition, the party
purchasing the ticket and reading the disclaimer could imagine that the words “All vehicles and
passengers use this ferry at their own risk” were applicable to factors beyond the control of the
ferry operators such as force majeure and hardship. 9 However, Phillip lost his car as a result of
the negligence of the captain of the ferry. The ferry company cannot claim that the disclaimer
covered the breach in question. Thus, the ferry company is still liable for Phillip’s loss.
8 McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press, 2014.
9 Schot, Natasha. “Negligent liability in sport.” (2005).
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References
Anson, William Reynell, Jack Beatson, Andrew S. Burrows, and John Cartwright. Anson’s law of
contract. Oxford University Press, 2010.
Furmston, Michael Philip, Geoffrey Chevalier Cheshire, and Cecil Herbert Stuart
Fifoot. Cheshire, Fifoot and Furmston’s law of contract. Oxford university press, 2012.
Koffman, Laurence, and Elizabeth Macdonald. The law of contract. Oxford University Press,
2010.
Lopez v. Charles Schwab & Co., Inc., 118 Cal. App. 4th 1224 (2004).
McKendrick, Ewan. Contract law: text, cases, and materials. Oxford University Press, 2014.
Perillo, Joseph M., and John D. Calamari. Calamari and Perillo on contracts. West Academic,
2009.Treitel, Guenter Heinz. The law of contract. Sweet & Maxwell, 2003.
Powell v Lee (1908) 99 L.T. 284.
Schot, Natasha. “Negligent liability in sport.” (2005).
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Smith, Stephen A., and Patrick S. Atiyah. Atiyah’s Introduction to the Law of Contract. Oxford
University Press, 2006.
Uniform Commercial Code (UCC).
