Whether Mario has a contract
With reference to case law, analyze each communication between Mario and Lee and explain whether Mario has a contract with Wood Ovens Pty Ltd.
The activities between Mario and Lee can be analyzed as follows; the first offer took place on the 3rd of July, when Mario went to Wood Ovens Pty a pizza oven retailer. Mario made the request to buy the most suitable oven for his business. Lee who works as a sales representative, suggested him the DELUXE A1 model, at a price of $15,500.
The next day Mario returned to the retailer with a new offer. He was willing to pay $15,000 for the suggested oven. To this new offer Lee agreed with the price but she did not agree with the condition of payment, so she suggested that he could get the oven at this price but with the conditional acceptance of cash payment. Mario replied that he may need a day to make up his mind. Thus, he would call her the next day.
On the 5th of July, Mario called Lee and told her that he would be able to pay the amount ($15,000) on cash. He also made a new conditional acceptance in which he required that for the price that he was willing to pay, he should get a free installation of the oven at his restaurant. Lee replied that if he wanted to get the oven and the installation, then the total price that he should pay was $15,250. Finally she gave Mario a week to decide whether to accept this offer or decline it.
On the 9th of July, just 4 days after the final offer, Mario discovered that his friend Jim got the same oven and that was installed by Lee. He decided to buy the oven at the final conditions suggested by Lee, but she informed him that she could not sell the oven to Mario because the last one was the one that Jim installed.
We can observe that in terms of offer, there were at least 5 different offers, and that each one of these was cancelled by the one that preceded it. The final offer being the fifth one was finally accepted by Mario.
Whether there was a contract or not, we needed to evaluate the six elements that constitute a contract. In this order of ideas, the next element to analyze relates to the Acceptance. It was important to recall that Mario accepted the conditions given by Lee related to the last offer which involved a price of $15,250 in cash and the installation of the oven on his premises. According to the “mirror principle" mentioned on Principles of Business Law (Gamble R et al, 2008) offer was the valid accepted because it contained both an unqualified and unconditional acceptance of the offer. In this case there was an effective acceptance.
In terms of the consideration, it was clear that in this case there was no exchange of anything different that the option given by Lee to Mario of one week to decide if he accepted the offer or not. In return, Mario gave nothing so this represented a clear answer that there was no consideration.
About the Certainty of terms, we concluded that this particular case was very clear. There was nothing special about the terms, they were concise, for example, the name of the oven model, the time terms (next day meant one day, one weak meant seven days from the offer), the moment of payment (on delivery), the location of installation (Mario’s business premises).
It was clear from the given information that there was an intention to create a legal relation for commercial purposes. Mario was planning to buy the oven for his pizza restaurant and not for domestic use.
Finally, because of the nature of this business, no written deed was necessary to formalize the transaction. Only a verbal form of agreement could make the contract if this took place to be legally enforceable.
In conclusion and by the reason gave and analyzed, we consider that there was no contract between Mario and Wood Ovens Pty Ltd. It was important to mention that Lee acted as a sales representative of this company and that the decisions that she made involved the company as a whole.
Question 2: Assume now that Mario has a contract with Wood Ovens Pty Ltd for the purchase of a ‘Deluxe A1’ model pizza oven, and one of the terms of the contract is that: ‘The liability of Wood Ovens Pty Ltd is limited to the cost of replacing a defective oven.’ However, Lee promises Mario orally that this term ‘is just a formality’ and that ‘you can get your money back’ if anything goes wrong. What are Mario’s rights (if any) against Wood Ovens Pty Ltd under Division 2 of Part V of the Trade Practices Act 1974 (Cth) if it becomes clear that the ‘Deluxe A1’ model pizza oven does not function properly once it is used for more than 15 hours a day? Can Mario enforce, under contract law, Lee’s promise that Mario can get his money back?
From the case we assumed that there was a contract under the principles of the Common Law. According to this we needed to check if the promise made by Lee at the time of signing the contract about getting a refund of the money if something went wrong with the oven, was part of the contract or not.
We have to consider if there was a reasonable notice of the terms of the contract, if so, then the promise was considered as a limitation clause. The limitation clause was already part of the contract. The effectiveness of the limitation clause was clear due to the possibility and ability of Lee to get by request the refund of the amount of money from Wood Oven Pty paid by Mario for the oven.
Moreover, we needed to consider if the promise made by Lee, and that we were considering a term of the contract, should be consider as an essential term or non-essential term. We assumed that in fact, this promise was essential for Mario to take the decision of buying the oven from Wood Ovens Pty.
According to the Trade Practices Act 1974 (Cth) this type of contract was a Consumer contract primarily because of the price that Mario paid for the oven, which was under $40,000. It was important to mention that this condition was enough to meet the requirement of a Consumer contract.
The implied terms that were related with the merchantable quality and fitness for purpose must be satisfied. In this particular case the oven that Lee sold to Mario was supposed to be “the top of the range in terms of pizza ovens" and also the most suitable for his business.
However, the oven did not function properly once was used for more than 15 hours a day instead of what Mario had told Lee that he wanted an oven for 24 hours a day, 7 days a week for his pizza business. The oven he bought was not in a good merchantable quality. Then this was a breach of contract, Mario had the right to sue Wood Oven Pty for this breach of contract under Division 2 of Part V of the Trade Practices Act 1974 (Cth). In fact, this breach of contract was generated by the breach of an essential term.
Any promise or verbal agreement made at the time of the contract became a part of the contract in the form of a collateral term. Thus this term should be considered for any action that the parts would have to take. According to the case, Lee orally promised to Mario that he could get his money back if anything goes wrong with the oven, so this promise should be considered a part of the whole contract.
We assumed that probably Mario took the decision of buying the Deluxe A1 model, based on what Lee promised him about the refund of the money among other things like the time of use.
We concerned whether the promise of Lee to Mario was misrepresentation or misleading, it could be concluded that Mario was misled by Lee because the three criteria of misleading mentioned on the lectures notes related to week 3 slide 14, were met as follows;
The defendant’s conduct is misleading or deceptive: Mario received wrong information from Lee, about the refund policy which misled him to buy the oven.
The plaintiff relied on the defendant’s conduct: Mario trusted in Lee, because she was the representative of Wood Ovens Pty Ltd.
The plaintiff’s reliance is reasonable: Mario believed that the term was just a formality according to what Lee told him and that he could get full refund if there was any damage to the oven.
Based on the written agreement, Mario would get a new replacement oven from Lee because his oven was broken down. However, the verbal agreement made at the time of the contract made by Lee misled Mario making him believed that he was also able to choose for a refund of money.
Mario could also enforce to sue for breach of an essential term contained in the verbal part of the whole contract. As it was mentioned, the promise made by Lee was an essential term and allowed Mario to get a refund.
It was necessary to recognize how important was the refund of the money in the decision that Mario took about buying the oven in order to clarify which action he was going to take. If the refund was not important for him when he made the decision, then he could request a new oven according to the policy contained in the contract.
In conclusion, for this case Mario could take two different actions: sued for refund of the money according to what Lee told him in the verbal agreement, or requested for a replacement of the oven based on the written agreement.
There were three steps to analyze the compensation for the breach of an essential term:
First, it was important to mention that this breach generated a breach of contract. Second, in terms of loss of profitable chance, Mario could propose the opportunity cost of loss of sales during the time while the oven was not working properly and because of this, he was losing his customers. Last, it was clear that this loss was directly connected with the failure of the oven; there was a loss of sales.
Referring to these three steps, Mario could sue for opportunity loss of profit from Wood Oven PTY as well.
Question 3: Assume that Jim purchases a ‘Deluxe A1’ model pizza oven from Wood Ovens Pty Ltd under a contract that is on relevantly similar terms to the contract between Mario and Wood Ovens Pty Ltd in question 2, above. Two days later, the oven catches fire as the result of a design fault and causes substantial damage to Jim’s shop. Jim is also injured in the process of trying to put the fire out. Explain whether Jim has any rights in negligence against Wood Ovens Pty Ltd in relation to his injuries and for the damage to his shop.
According to the facts that were given in the case above, we assumed that Jim had the right to sue Wood Ovens Pty Ltd. for negligence for the damages that his shop suffered because of the fire, but not able for his own injuries.
If we examine the six elements necessary to claim an event as negligence mentioned on the lectures notes related to week 2 slide 2, we observe:
Damage: damage to property, because his shop was damage by the fire that caused by the faulty oven that Wood Ovens Pty Ltd. sold him.
Duty of care: The manufacturer owed a duty of care to Jim in negligence in the design of goods, because the fire was caused by the faulty design of the oven.
Breach of duty: Wood Ovens Pty breached the duty to manufacture and to provide an oven in good conditions.
Causation: The fire was directly caused by the faulty design of the oven.
Remoteness: It was very foreseeable that the faulty design of the oven would cause a fire in any customer restaurant.
Damages: in the situation if the fire did not occur, Jim’s restaurant would not be damaged. So, this was the damage of property that should be remedied to Jim for the cost of repair of his shop to the state of before the fire occurred. Moreover, Jim lost his oven that was very important for running his pizza business. It was foreseeable that there was a loss of sale from the period of fixing the shop until he could be able to operate his business again. Jim could also sue for pure economic loss.
However, Jim could not sue Wood Oven Pty for negligence to relief his personal injury while trying to put the fire out because, to achieve the ability to sue, every six element must be satisfied. But for remoteness, there was unforeseeable consequence from the manufacturer to see that the fire caused by the faulty design of the oven might lead to personal injury. For example, instead of putting the fire out by himself, he might call the fire department. Or, if the fire was big, he could request for help from his neighbor. Moreover, Wood Oven Pty can defense that Jim chose to risk his own life to put off the fire, so his action was a voluntary assumption of risk.