Legal Advice on Mobile Phone Contracts

I have been asked to advise Terry, a 17 Year Old boy who wanted a mobile phone. After selecting the carrier ‘Cheap to Talk’ and inquiring in store, he mentioned how he looked forward to calling his friends on all networks for a total of $30. The assistant heard this, but stayed quiet. Terry did not read the contact terms and just signed it the document that stated, “I agree to be bound by the terms and conditions of ‘Cheap to Talk’.” After the first month, Terry received a bill for $900 and when he confronted ‘Cheap to Talk’ he was shown clause 10 of the document he did not read, which read “The customer agrees that the Phone3000 plan is limited to calls made to ‘Cheap to Talk’ customers. Calls to other phones will be charged at the normal rate. [1] ” ‘Cheap to Talk’ are now suing Terry and he has asked for my advice him on his legal position under contract law.

Legal Issues

The key issues in Terry’s case appear to be:

Does Terry have an enforceable contract with ‘Cheap to Talk’?

Was the employee of ‘Cheap to Talk’ misrepresenting Terry?

Has the employee of ‘Cheap to Talk’ breached the contract because of unconscionable conduct and does this allow Terry not to pay the bill and terminate the contract.

Legal Principles

A contract is a binding agreement between parties that can be enforceable by the courts [2] . As such, the first task is to prove whether there is contract between the parties, specifically was there an offer, acceptance, agreement, intention, consideration and a capacity as found in Macrobertson Miller Airline Services v Commissioner of State Taxation (WA) [1975] 133 CLR 125 [3] . A seller of goods holds a duty of care to the purchaser to provide all necessary information. If this does not occur and the information induces the purchaser to enter into the contract, then the seller has misrepresented the purchaser as found in Hinton v Commissioner for Fair Trading [2006] NSWADT 257 [4] . According to the case, Commercial Bank of Australia Ltd v Amadio [1983] 151 CLR 447; 46 ALR 402; 57 ALJR 358 at 366; HCA 14, if a party had a special disadvantage over another that prevented weaker party from judging what was in their best interest then their conduct is unconscionable [5] .

Discussion

By applying the above legal principles to the Terry’s case, I can advise on the following:

Does Terry have an enforceable contract with ‘Cheap to Talk’?

When Terry approached ‘Cheap to Talk’ in order to obtain a new phone he became the offeree, and ‘Cheap to Talk’, the offeror, as he was offered to take up a contract with them to provide his mobile services. The offer was then accepted by the employee of ‘Cheap to Talk’ on behalf of the company through both a verbal acceptance and then an agreement through Terry signing the contract with ‘Cheap to Talk’ as said in Smith v Hughes [1871] LR 6 QB 597 at 607 where the agreement “…will usually be when they are finally agreed and negotiations are complete” [6] . It should be noted here that as the contract is most likely a standard contract and as such it can be assumed that they were certain of all the terms of the contract. However, due to Terry’s choice to not read the contract terms, he was not certain of all the terms of the contract. This does not mean that the contract was incomplete because Terry signed a document binding him to the contract and all of the terms regardless of whether he chose to read the terms or not, as was found in L’Estrange v F Graucob Ltd [1934] 2 KB 394; [1934] All ER Rep 16, where “once a person has signed a document which he or she knows to contain contractual terms, the signature is said to incorporate all the terms of the document” [7] . The offer showed consideration through the fact the deal was that ‘Cheap to Talk’ would offer mobile phone coverage for money and that there was obviously was an intention from both parties for this agreement to be a legally binding contract. However, Terry did not have a capacity to enter into such a contract with ‘Cheap to Talk’ as they were not providing an appropriate service to him as set out in McLaughlin v Darcy [1918] 18 SR (NSW) 585; 35 WN (NSW) 174. “A contract between two parties for which one or more is a minor is binding if the contract is for a necessity of life or a beneficial service” [8] . In this case, the service that ‘Cheap to Talk’ is providing to Terry is not one required for his survival in life, nor is it beneficial such as an education. This service appears more as a form of entrainment or enjoyment as Terry himself said, “…he was excited about being able to phone all of his friends… [9] ”

Therefore, the contract is invalid and not binding under the decision in Macrobertson Miller Airline Services v Commissioner of State Taxation (WA) because Terry, being a minor at the age of 17 had an incapacity to contract with ‘Cheap to Talk’ as the service being provided was neither needed for survival, nor beneficial to him.

Was the employee of ‘Cheap to Talk’ misrepresenting Terry?

In this case, the employee of ‘Cheap to Talk’ owed Terry a duty of care whilst he was investigating and deciding on which phone plan to enter in to as she was providing information critical to Terryis accurate decision making to whether this was to his benefit or not. This arose when she heard Terry mention “the fact he was excited about being able to phone all of his friends, all of whom were not Cheap to Talk customers, for a maximum cost of $30.00 per month” [10] and chose to take no action to correct his mistake to the actual terms of the deal. As detailed in Hinton v Commissioner for Fair Trading, there are three things to prove misrepresentation, that the statement be that of fact, that the statement be false and that the statement led to the accepting of the contract [11] . The statement that Terry made regarding his intentions for use of the contract and therefore his beliefs to the allowances of the plan were a statement of fact and he believe this to be the case. This statement was in fact wrong and the employee heard the statement and did nothing to correct his mistake. By not correcting the mistake by Terry, she gave no indication to Terry that he was false and therefore this critical information was not taken into account with his decision to enter into that contract as he believed that he could call anyone he wanted for $30 a month regardless. This decision by Terry was to his detriment as all of his friends he intended to call were not ‘Cheap to talk’ customers.

Has the employee of ‘Cheap to Talk’ breached the contract because of unconscionable conduct and does this allow Terry not to pay the bill and terminate the contract.

The biggest problem with this current case is the unconscionable conduct that the employee of ‘Cheap to Talk’ displayed when she heard Terry mention “the fact he was excited about being able to phone all of his friends, all of whom were not Cheap to Talk customers, for a maximum cost of $30.00 per month” [12] and stayed quiet even though she knew that he was wrong and decided that the quick deal was more important. According to Commercial Bank of Australia Ltd v Amadio, unconscionable conduct occurs when three circumstances are satisfied, the first is that a relationship exists between parties and one of those parties has an advantage over the other, that one party is using that advantage for gain and that the consequence for the lesser party is that they are unable to make a sound judgment to what is in his or her best interest [13] . There was a relationship between the employee of ‘Cheap to Talk’ who represents the company and Terry. After hearing Terry’s comments regarding his plans with the phone to call all of his friends not just on ‘Cheap to Talk’ network for just $30, the employee had an advantage over Terry, for she knew that this is not the case. By not revealing this to him on the spot, and choosing to remain quiet to get the quick deal, the employee was exploiting this knowledge. And thus, by the employee with holding this information about the real costs that the plan he was about to enter into, Terry was the weaker party in this contract and by not having this information, he is not able to make an appropriate call to whether or not this plan is in his best interest. So the conduct of the employee acting on behalf of ‘Cheap to Talk’, the offeror to this contract, was unconscionable to the offeree, Terry.

Conclusion

In conclusion, my advice to Terry is that there is not an enforceable contract between him and ‘Cheap to Talk’. Even though there was an offer, acceptance, agreement, intention and consideration with regard to the contract, there was however an incapacity for terry to contract with ‘Cheap to Talk’ as he is a minor and the service that they are providing is not needed for his survival, nor is it beneficial. The contract was intended for Terry’s enjoyment and entertainment. The fact that Terry was incapable of entering into a contract was not the only reason that the contract was not enforceable. The second reason was that the employee of ‘Cheap to Talk’ that was serving Terry misrepresented him. Terry mentioned how he looked forward to talking to all his friends, all of whom were not on the ‘Cheap to Talk’ network for just the monthly value of $30 and the sales representative heard this but did not correct him when she knew the contract terms and conditions stated that the $30 value was only if all calls were made to ‘Cheap to Talk’ customers and any extra will cost extra. Regardless of the fact that Terry signed the document without reading the terms and conditions by the sales representative not informing him of that condition and that he in fact was wrong, Terry made the decision without critical facts that the sales representative knew he didn’t have. Therefore, the remedy for this is rescission, which means the contract is dissolved from when it was signed and therefore, Terry owes ‘Cheap to Talk’ no money as the contract is invalid. The third and final reason that the contract is invalid is because the conduct of the sales representative was also unconscionable. She had an advantage over Terry as she knew all the facts of the contract when Terry didn’t and she made no attempt to inform him. This led to Terry not knowing all the facts including all the critical information allowing him to make a wrong decision that ended up being to his detriment. So the contract is invalid and rescission should occur meaning that Terry owes ‘Cheap to Talk’ no money.