Contracts
What is Law
• Generally accepted “Rules of Behaviour”
• Contract Law developed from the need to enforce
promises or an undertaking. These promises were
enforced by the King represented by the courts
• To ensure that every one received consistent
justice, decisions were recorded so that future
decisions could be based on similar principles
• The is called Common Law
Sources of Law
• Common Law – Is law derived from previous
decisions on cases of similar merits. Known as
Judge made law.
• Why is this important?
• To allow for certainty!
• This system has problems, what are they
• Contract Law is based on Common Law
Sources of Law
• Statute Law
• Law enacted by parliament
• Ensure that law will reflect the needs of the
community
Source of Law
• Were there is a conflict between statute law &
common law
• Statute Law will prevail
• This has important ramifications for Contact
Law
• Contract Law has been affected by statute law
Civil Court System in NSW
Full Bench Federal Court of
Australia
High Court of Australia
Final Court of Appeal
Each State will have a
similar system
Appeals
Court of Appeal NSW
Federal Court of Australia
Commonwealth Matters
Bankruptcy, Trade
Practices
Appeals
Supreme Court NSW
Unlimited
Appeals
Appeals
CTTT
Cases up to $500 000
District Court
Cases up to $750 000
Appeals
Magistrates Court
Cases up to $40 000
Appeals
Other Tribunals
i.E. Land Environment
Court
Civil Court System in NSW
Binding Precedence
Full Bench Federal Court of
Australia
Federal Court of Australia
Commonwealth Matters
Bankruptcy, Trade
Practices
CTTT
Cases up to $500 000
High Court of Australia
Final Court of Appeal
Court of Appeal NSW
Lower Courts are bound
by decisions from a
superior court in their
jurisdiction
Supreme Court NSW
Unlimited
District Court of NSW is
not bound to follow
decisions of the Supreme
Court of Victoria
District Court
Cases up to $750 000
Magistrates Court
Cases up to $40 000
Other Tribunals
i.E. Land Environment
Court
Contracts
• What is a Contract ?
• A legally enforceable promise by one party do
something or to refrain from doing something
• To be legally enforceable the agreement must
comply with Common Law requirements for a
valid contract
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Intention
• Is there an intention to enter into a legally
binding agreement
• Social Agreement are presumed no
• Business Agreement are presumed yes
• Intention can be expressly excluded
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Offer
• Offer may be in writing, verbal or implied by
conduct
• Offer must be communicated
• The Offer can be withdrawn at any time
before acceptance (Postal Rule)
• An offer will lapse if
- not accepted with in a stated time
- not accepted within a reasonable time
- a counter offer is made by the other party
Offer
• Invitation to Tender is not an offer – Invitation
to treat
• Offer will terminate on rejection
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Acceptance
• Must be final and not qualified (other wise it
is a counter offer
• Only person who offer has made to can accept
• Silence is ineffective
• Conduct can constitute acceptance
• Once accepted no other negotiations can be
conducted
• Method of Acceptance can be specified (See
Postal Rule)
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Valuable Consideration
• Something of Value – Usually Money
• Does not have to be a fair deal
• Simple Contracts must have consideration
This is the fundamental Difference between a
contract & a promise
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Legal Capacity
• Minors generally do not have legal capacity except
-Items of necessity
-Items that are beneficial
• Mentally ill do not have capacity
• An intoxicated person does not have capacity
- but on sobering up can affirm the contract
• Corporations are treated as individual entities and have
capacity to contact – beware who you are contracting to
• Alien Enemies capacity is reduced
• Convicts have capacity
• Married Women – Unfortunately are allowed to contract to
receive credit cards
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Genuine Consent
• The consent must not be induced by
deception of fraud
• Contract can not be formed under duress
• Contract cannot be formed by Unconscionable
Conduct
Essentials of a Valid Contract
• Intention for the parties to enter into a legal
relationship enforceable by law
• Offer & Acceptance
• Valuable Consideration or execution under
seal
• Legal Capacity to Act
• Genuine Consent
• Legality of the Objects of the Contract
Legality
• The object of the contract cannot violate
Statute law
- you can not contact to kill someone and then
expect a court to enforce payment
• Illegal under Common Law
- Contract to commit a tort
- Promote Corruption
- Prejudicial to Administration of Justice
- Prejudicial to Public Safety
Forms of Contract
Simple Contracts
• Can be either Verbal or Written
• Implied
• Can evidenced by Written Communication
Forms of Contract
Formal Contracts
• Derived from old law before the Common Law
principles of Contracts was developed
• Method to make promise enforceable
• Must be written
• Sometimes referred as Deed
Forms of Contracts
Express Contract
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Normal Type of Contract
Conditions & Warranties documented
Supporting Documents i.e. Drawings, Spec etc
Dispute Resolution Process?
Time For Completion
Liquidated Damages Spelt out
Form of Contract
Implied Contract
• Contact constructed by the courts
• Actions or Inactions by the parties indicate a
contract exists
• Conditions & Warranties to be determined by
the court at a later date
Implied Contracts
• Builder Contracts to build house on C1 block
of land
• By error Builder builds on C2 land which is
next block. C1 is unaware of this.
• Most evenings C2 has a beer with the builder
and has a chat.
• C2 has an implied contract and must pay the
builder. C2 has a duty to stop the builder
Contract Terms
Condition
• Major requirements of the Contract
• Fundamental to the contract
• Breach allows innocent party to either
Terminate the Contract or Sue for Damages
Contract Terms
Warranties
• Minor Term of the contract
• Contract is not substantially different
• Breach allows innocent party to sue for Damages
• Termination will be a breach of contract and
innocent party may be liable for damages
Contract Terms
Innominate Terms
• May either be a warranty of Condition
(Paint one door the wrong colour v’s the
whole building)
• Is a subjective assessment
• Most terms will fall in this area
• Must take care in dealing with these breaches
Operation of Contract
Privity
• Only parties to a contract have rights and
liabilities under a contract
• A contracts with b to build a house for C
• C cannot sue A for any breach
Operation of Contract
Assignment of Contract
• Rights to a contract by be assigned to a third
party
• Novated Lease is an example of this
Discharge of Contract
Discharge of Contract - Conclusion
1. By performance
2. By agreement before completion
3. Operation of Law
-Bankruptcy - Liquidation
-Merger ?
-Fraud
Discharge of Contract
Impossibility of Performance - Frustration
1. Absolute Impossibility- contract to renovate
house, house burns down
2. Radical Difference – Change of Council or
Government Conditions, Court Injuctions
3. Supervening Illegality –Law is Changed after
contract is formed to make it illegal?
4. Futility –Where purpose of the contract is
no longer valid?
Discharge of the Contract
Time - Unless time is a Condition of the contract
a contract will not lapse
Discharge of the Contract
• Breach of Contract- Not every breach of
contract allows for the termination of the
contract
Before this action is taken legal advise should be
sought.
• A court will determine whether the breach
was substantial enough
• Innocent party may be liable for damages
Damages
• Unliquidated
- Determined by Court
• Liquidated Damages
- Genuine Estimate of loss agreed to in
contract
• Penalty
- if loss is not Genuine classed a penalty and
will be reduced to genuine loss