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BLST2BSL Introduction to Business Law and Ethics

Published : 28-Sep,2021  |  Views : 10


Case Study

Alvin runs a business selling expensive cars. Last Monday he mistakenly placed a notice on one car indicating that the car was for sale for $5,000 when in fact its real price was $25,000. Bert later noticed the sign and recognizing what a
bargain it was. He immediately indicated to Alvin that he accepted the offer and that he would take the car for the indicated amount. Alvin however told Bert that there had been a mistake and that the true price of the car was $25,000. Bert insisted that he was entitled to get the car at the lower price, and when Alvin would not give it to him at that price Bert said that he would sue Alvin. Bert then left.

After Bert had left, Alvin changed the price of the car to $25,000 and then Cat came in and said that she would like to buy the car but that she would have to arrange finance.Two days later Del came by and offered Alvin $25,000 cash for the car there and then. Alvin sold the car to Del.
Advise the following;
(a) Does Bert have an action against Alvin for breach of contract
(b) Does Cat have an action against Alvin for breach of contract
(c) Does Del legally own the car

Farmer Bob goes to the market to auction his calf. On the morning of the sale,before the commencement of the proceedings, Farmer Joe is examining the calf when Farmer Bob comes up to him and says “I had her examined by the vet last week and he says there’s nothing wrong with her, She is as sound as a bell.”Farmer Joe stops his examination and in due course purchases the calf at the auction. A term in the auction conditions of sale reads:“No warranty is given as to the quality of any animal”It is true that the vet last week pronounced the calf in good health. Unfortunately
the vet was wrong as the calf has tuberculosis and dies a week after the sale.Does Farmer Joe have a remedy for breach of contract.

Obtain a copy of a written contract that is available in Australia from the net or another source. For example you could download one of the many online contracts you are asked to agree to before accessing a site or entering an online contract.
Please provide the following information;
(i) Select a term in the contract that is written in complicated legal language. Highlight at least three words or phrases that you don’t understand, research their meaning and provide a definition for each one. Please include an example if you think that will help.

(ii) Proved a plain English ‘translation’ of the term you chose in (i)above or another term. The words you use should be clear to most English speaking adults. Feel free to make significant changes to the structure or wording and to use everyday language.
(iii) Print out and highlight six terms. You then must classify each term as either a condition or warranty using case law. You must include a brief explanation about why you think each one can be classified in this way.


To begin with, it is important to state that every contract requires a meeting of minds between the contracting parties (Duhaime 2007). Therefore whenever there is a mistake in the contract there would usually be no meeting of the minds. This in essence means the intention of the contracting parties contracting should be met at the time of contracting. Where one party is mistaken in relation to the terms of the contract, it is deemed to be a unilateral mistake. In this circumstance, the offeree is deemed to have reasonably known of such an error. The authoritative decision of the court in Webster v Cecil (1861) found that there was a unilateral mistake. The defendant had declined to sell a property at $2000 but the plaintiff sought to buy at a lower price. The defendant erroneously accepted the lower price and the court held the contract to be void. On the other hand, the court has been of the opinion that terms in the advertisement should be enforced as it is (Donovan v. RRL Corp (2001)).

In light of the above discussion, Bert clearly has an action against Alvin provided he proves that he was not reasonably aware of the mistake on the price. The court in support of Bert’s claim in Donovan v. RRL Corp has held that what is contained in the advertisement cannot be changed.

 Whether Cat has an action against Alvin for breach of contract

Generally an acceptance must be a mirror of the offer made (Adams 2014). Whenever an offer is made the accepting party is supposed to accept the terms therein without any amendment, otherwise there would be a counter offer made (Hyde v. Wrench, (1840)). The defendant in the aforementioned case offered to buy at $50000, the plaintiff however sought to buy at $4500 but he later agreed to the initial price. The court held that the initial offer had been revoked by the counter offer.  A counter offer essentially revokes the first offer and the offeree cannot go back to the initial offer. The offerer on the other hand will either reject or accept the counter offer made (Rawls 2014). The other argument accruing herein relates to a conditional acceptance (Rawls 2014). Rawls argues that an acceptance that is made subject to an event is a conditional acceptance and the law of contract outlaws such an acceptance.

Cat in the facts provided accepted the offer but he seeks to arrange for finances. By seeking to arrange for finances Cat did vary the terms of the offer, hence he made a counter offer which Alvin can either accept or reject. The conditional acceptance is also invalid as explained there above. Cat therefore does not have an action against Alvin.

 Whether Del legally owns the car

For a contract to have valid acceptance, that is, in consonance to the offer made, there must additionally be a consideration, an intention to create legal relationship, certainty as to terms and finally the requisite capacity (Law Teacher). An acceptance ought to be an exact reflection of the offer. This means there should be no changes by the offeree on the terms as contained in the offer (Rawls 2014). Rawls (2014) further argues that the acceptance should not be subjected to a condition. He argues that any acceptance containing the phrase ‘subject to’ is a conditional acceptance and therefore an invalid acceptance. Rawls finally argues that an acceptance ought to be communicated by the offeree.

All the elements of a valid contract have been met in the contract between Del and Alvin. To begin with, he accepts the offer without altering the terms of the contract or putting a condition subject to acceptance. Secondly, he provides the consideration as contained in the offer. The parties herein also clearly intend to be bound by the terms in the contract. Therefore because all the elements of the contract have been met, then Del is the car’s legal owner.

Whether Farmer Joe has a remedy for breach of contract

To begin with it is important to state that animals are generally classified as property or goods just like any object that is subject to sale (LexisNexis 2012). The contractual relationship that arises during sale by auction is between the buyer and the seller, auctioneer is not part of the contract herein (Australian Commission 2009). Therefore if the goods are not of good quality or are merchantable, the auctioneer is exempted from responsibility. Under s 14 of Sale of Goods Act 1895 of Australia there is an implied condition that the goods that are being sold are of good quality and fit for the intended purpose or in other words merchantable. In other words, merchantability dictates that goods being ordinarily sold should be sellable in an open market unless the buyer is aware of such defects. Where a buyer has relied on his own skill on examination of the quality of the goods, then he would be estopped from alleging that he relied on the seller’s skills or judgment (Singh 1993). Singh continues to argue that the situation would be different if the buyer places his reliance on the seller’s skill.

The court in affirming this position held in the case of Great Atlantic Pacific Tea Co. V. Eiseman that where the buyer relies on the seller’s judgment and skill then the seller is held liable. Furthermore, according to Singh, if the seller assures that the goods are merchantable and the buyer does not bother to check the defects, the court would hold that the buyer was misrepresented by the seller on the value of the merchandise. This was reiterated in Prudential Ins. Co. v. Jefferson Associates, Ltd (1995). The court held that the buyer is not bound by the contract where it is proven there was a misrepresentation. The buyer however, would have to prove that he was misrepresented. Finally as argued by Singh, where the defects are latent and hence a reasonable examination would not disclose the defects, the seller’s judgment or skill would be relied upon by the buyer.

From the facts given, the main issue herein relates to the merchantability of the goods sold, which is the calf. The buyer herein relied on the judgment of the seller in relation to the state of the calf. It is the seller who actually assured the buyer that the calf was in perfect health after having it examined by an expert. Furthermore, if the buyer had examined the health of the calf he would not have reasonably discovered the true state of health because it is a latent factor or defect that only the seller should have revealed. There has also been a misrepresentation on the part of the seller since he claimed the calf was in a good state of health when it was suffering from tuberculosis. An argument that the buyer relied on his skill would not suffice since he abandoned his examination because he was led to believe that the calf was in a perfect state of health. Generally speaking, the calf was not merchantable and it ought not to have been sold in an open market because of its bad health. The seller is therefore responsible for the breach of contract.

To answer this question I am going to use terms of a legal agreement of IBM (, 2017). The clause that contains the said legal terms is the disclaimer of warranty. The words and phrase that I will focus on are; The Warranties of Merchantability, Non-Infringement of Proprietary and Intellectual Property Rights and Services are Provided “As Is,” With No Warranties Or Guarantees Whatsoever (, 2017). 

The Warranties of Merchantability

This term means an unwritten and unspoken assurance that the goods being bought are of good quality just like all other goods being sold in market (legal dictionary). 

Non-Infringement of Proprietary and Intellectual Property Rights

The legal dictionary defines propriety rights as rights that are associated with ownership of a property while intellectual property rights involves a right to use a property by the owner without competition. Intellectual property rights extend to intangible entitlements and innovations. This phrase therefore means ownership rights and exclusive original ideas and other intangible rights should not be violated. 

Services are provided “As Is,” With No Warranties Or Guarantees Whatsoever

This is somewhat ambiguous word to ordinary persons. In this context, the word guarantee and warranty both mean a promise or assurance. This phrase therefore means there is no assurance whatsoever on the services being provided.

  1. There is no assurance as to the value of quality of the goods herein.
  2. Ownership and exclusive rights in relation to a property whether tangible or intangible should not be violated.
  • There is no assurance as to the quality of services being provided.


The above term is a condition key to formation of this contract. A violation of this term will render the contract void. The court held in the case of Tramways Advertising -v- Luna Park (1938) that essentiality placed on the terms determines whether it is a condition or a warranty. The above term is key to the contract.

This term is fundamental to the formation of the contract herein. This term means the information derived from the website must not be shared, a violation would void the contract. The court in the case of Poussard -v- Spiers and Pond has held that where the terms are fundamental then such terms are conditions. 

The above permits IBM to terminate ones link to this website. This is a term that a party ought to consider well before entering into this contract since it is prerequisite to its formation. This term is fundamental in formation of this contract hence it is a condition. The court in the case of Poussard -v- Spiers and Pond has held that fundamental terms are conditional terms. 


Such a term is fundamentally rooted to the contract. For instance if such information displayed is not accurate then the contract would not be held void. This is a mirror to the finding of the court in the case of Tramways Advertising -v- Luna Park where the court uses essentiality test to determine which term is a condition or a warranty. 

The above term is a warranty; a party will not allege that what he shared was confidential in his claim for revocation of the contract. Reasonably herein a party who is aggrieved can only seek damages there from a deemed violation. The court reaffirms in the case of Benttini -v- Gye that a warranty is a minor term that would not render a contract void. 

This term is a warranty since it is a minor term and it has no fundamental effect on the contract. The contract would still be in place even if such a term is not complied with. It is merely to inform the party to the contracts of products and services. This position is confirmed in the case of Benttini -v- Gye, where the court held that minor terms are warranties. 


Australian competition and consumer commission 2009, Warranties and refunds a guide for consumers and business

Benttini v Gye (1876) 1 QBD 183

Donovan v RRL Corp., 27 P.3d 702, 109 Cal. Rptr. 2d 807, 26 Cal. 4th 261 (2001)

Duhaime, L 2007, Part 5: Mistake, Rectification & Misrepresentation viewed 18 April 2017

Great Atlantic Pacific Tea Co. v Eiseman 259 Ky. 103, 81 S. W. 2d 900

Hyde v Wrench 1840 E.R.49 132 (1840)  2017, IBM Terms of use – Australia, viewed 20 April 2017

Adams, A 2014, Law for Business Students 8th edn, Pearson Higher Ed.

Law teacher, Main Elements Constituting A Valid Contract viewed 20 April 2017

LexisNexis, Halsbury’s Laws of Australia (at 2 October 2012) 20 Animals, ‘1 Property in animals’ [20-50]

Poussard v Spiers and Pond (1876) 1 QBD 410

Prudential Ins. Co. v Jefferson Associates, Ltd 896 S.W.2d. 156 (Texas 1995)

Rawls, N 2014, What you need to know: counteroffers and contracts viewed 18 April 2017

Sale of Goods Act 1895 Australia (Cth)

Saltoon v Lake [1978] 1 NSWLR 52

Singh, G 1993, Business self-regulation and consumer protection in India: A critique. Journal of Consumer Policy, 16(1), pp.1-33

Tramways Advertising v Luna Park (1938) 38 SR (NSW) 632

Webster v Cecil 30 Beav. 62 (1861)

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