QUESTION
1. Steve is a 16-year-old student working at Dominos as a delivery assistant. He uses his phone to navigate his way when delivering food orders. During a basketball game, his phone got broken. As the phone is an essential tool for his work, he decides to replace it immediately. On getting to JB Hi-Fi, he locates the section where iPhones are placed, calls for the help of a sales assistant and picks out an iPhone 14 priced at $1500. On getting to the counter, Steve hands the phone to the cashier and is told it costs $1500. He swipes his card and is given the phone pack with his receipt. On getting home, he opens the pack and discovers a small crack on the screen. The crack does not affect any functionality of the phone, but Steve is angry about the crack and alleges that after spending $1500, the crack means that the contract between himself and JB Hi-Fi is invalid.
Assuming Steve’s phone did not get broken, and it was functioning perfectly, and Steve negotiates the sale of an iPhone 14 with JB Hi-Fi (on a buy now and pay later deal) but Steve fails to pay for the phone arguing that he lacks the requisite capacity to contract;
iii. Can Steve refuse to pay based on his argument? NOTE: Please refer to ONLY case law. Do not refer to any statutory provisions
SOLUTION
(i) Whether there is a valid contract between Steve and JB Hi-Fi?
Offer and acceptance (agreement), consideration, intention to create a legal relationship, and certainty are the four requirements for forming a legally binding contract.
Offer and Acceptance:
An offer is made when a person expresses his willingness to contract.[1] However, goods displayed at a shop along with its price tag do not constitute an offer. Such display is an invitation from the seller to others to make an offer. [2] By selecting the item from the display and taking it to the cash counter, the customer makes an offer. When the seller accepts the payment for the goods, he accepts the offer and, hence an agreement is formed.[3] Therefore, in the present case, an offer was made to JB Hi-Fi when Steve picked iPhone and handed over to the cashier for payment and JB Hi-Fi accepted Steve’s offer by receiving the payment and issuing the receipt. Thus, an agreement is formed between Steve and JB Hi-Fi.
[1] Michael Gilding, Australian Contract Law: Principles and Cases (Oxford University Press, 7th ed, 2020) [2.50].
[2] Pharmaceutical Society of Great Britain v Boots Cash Chemists (Southern) Ltd [1953] 1 QB 401.
[3] Michael Gilding, Australian Contract Law: Principles and Cases (Oxford University Press, 7th ed, 2020) [2.90].
Consideration:
Consideration means that something of value is exchanged between the promisor and promisee. It must be bargained[4] and must move from the promise.[5] In the present case, $1500 is a sufficient consideration for iPhone.
Intention to Create Legal Relationship
The parties’ desire to create legal relation is presumed in commercial agreements.[6] The conduct of the parties will also determine the requisite intention.[7] In case of Steve, his conduct of swiping his card for payment and the cashiers conduct of giving a receipt indicates their intention to create a legal relation.
Certainty
Certainty means that the contract must be complete, adequately certain and clear, and the promise should be non-illusory.[8] Completeness is where the subject-matter is identified and there is consideration.[9] A contract is certain if it is not capable of multiple meanings.[10] In the present facts, there is no uncertainty regarding the purchase of iPhone.
Thus, the four elements of valid contract are satisfied and hence, there is a valid contract between Steve and JB Hi-Fi. The crack on the screen does not affect the validity of the contract.
(ii) What are the available options with regards to the small crack on the screen?
Australian Consumer Law forbids persons involved in trade and commerce to engage in misleading or deceptive conduct.[11] If a consumer has suffered any loss on account of such conduct, he can claim damages[12] or refund of money[13] from the concerned person.
[4] Australian Woollen Mills v Commonwealth (1954) 92 CLR 424.
[5] Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460.
[6] Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117.
[7] Shahid v Australasian College of Dermatologists (2008) 168 FCR 46.
[8] Michael Gilding, Australian Contract Law: Principles and Cases (Oxford University Press, 7th ed, 2020) [5.10]
[9] J W Carter, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018) 89–90 at [4-01].
[10] Council of the Upper Hunter County District v Australian Chilling and Freezing (1969) 118 CLR 429.
[11] Australian Consumer Law (Cth) s 18.
[12] Ibid s 236.
[13] Ibid s 237.
The act of JB Hi-Fi displaying misleading and deceptive information on the phone pack is actionable under the consumer law. Therefore, Steve may file a consumer complaint against JB Hi-Fi and recover compensation as well as seek replacement or refund from them. However, if Steve had reasonable opportunity at the shop to open the package and inspect the phone, it will mean that he has failed to undertake reasonable care, which results in reduction of damages.[14]
(iii) Can Steve refuse to pay arguing that he lacks the requisite capacity to contract?
Generally, persons under the age of 18 years are considered to be minor and lacks capacity to enter into valid contracts.[15] However, if the minor has entered into the contract for the supply of necessaries, such contracts are binding and enforceable against the minors.[16] If a contract entered by the minor is for goods which are reasonably necessary for his support in his course of life and if the minor is not already sufficiently supplied of those necessaries, that contract will be rendered as a contract for necessaries.[17] Furthermore, such a contract must be beneficial to the minor.[18]
In the instant case, Steve was a minor who made a contract with JB Hi-Fi for supply of phone on a ‘buy now and pay later’ scheme. Phone is an essential tool for Steve’s work, and hence, the supply of the same by JB Hi-Fi was reasonably necessary to support his employment. Furthermore, at the time of entering into contract with JB Hi-Fi, Steve did not already have sufficient supply of phone as his phone had broken. Thus, Steve’s contract with JB Hi-Fi qualifies to be a contract for necessaries beneficial to him. Hence, Steve is legally obliged to pay JB Hi-Fi and cannot refuse the same on the ground of lack of requisite capacity to contract.
[14] Competition and Consumer Act 2010 (Cth) s 137B.
[15] Michael Gilding, Australian Contract Law: Principles and Cases (Oxford University Press, 7th ed, 2020) [7.20].
[16] Bojczuk v Gregorcewicz [1961] SASR 128.
[17] Nash v Inman [1908] 2 KB 1.
[18] Bojczuk v Gregorcewicz [1961] SASR 128.