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Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
Contract Law
Part 1
Chapter 7
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
by Barron & Fletcher. Slides prepared by Kay Fanning.
Valid contract
• An agreement made between two or more parties,
giving rise to legal rights and obligations which the
law will enforce.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-2
Valid contract
Intention to create
legal relations
Legality
of object
Terms:- Express/implied
Offer
Acceptance
Conditions
Warranties
Form
Consideration
Exclusionary clauses
Reality of
consent
Capacity of
parties
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-3
Classifications
Classifications
Validity
Performance
Format
Formation
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-4
Validity
Validity
Valid
All essential elements
present, therefore law
will enforce on behalf of
either party
Void
No legal effect
Voidable
Unenforceable
Entitled to be rescinded
by innocent party
Essential elements
present but technicality
prevents it from being
enforced
Illegal
Purpose or object of
contract is illegal
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-5
Performance
PERFORMANCE
EXECUTED
 One party to contract
has completed their part
of the contract
EXECUTORY
 Both parties have
obligations to
perform
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-6
Formation
FORMATION
EXPRESS
WRITTEN
IMPLIED
 Dependant on
associated conduct
QUASI
 By operation of
law
w
SPOKEN
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-7
Intention to create a legal
relationship
Social/domestic agreement
Assumption No intention to create
legal relationship
(Balfour v Balfour)
Intention to create legal
Prove
relationship
(Todd v Nicol)
(Wakeling v Ripley)
• Financial disadvantage leaving
job
• Expenses incurred in moving
• Selling belongings
Business agreement
Intention to create
legal relationship
No intention to create
legal relationship
• Presumption rebutted in
contract
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-8
Format
SIMPLE
Verbal, written, implied
wConsideration must pass
in both directions.
wStatute of limitations – 3 yrs
FORMAL
Written
wDoes not require
consideration passing
in both directions
wStatute of limitations - 12 yrs
Contract of Record
Contracts under Seal
(Deeds)
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-9
Essential elements of a
contract
•
•
•
•
•
•
Intention to create a legal relationship
Offer and acceptance
Form and/or consideration
Capacity of parties
Reality of consent
Legality of object
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-10
Offer
• Invitation to treat: An invitation to invite people to
make offers.
Pharmaceutical Society of Great Britain v Boots
Cash Chemists (Southern) Ltd (1952) 2 QB 795
• Offer: A proposal by the offeror that if accepted
by the offeree will create a legally binding contract.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-11
Rules with respect to offer
• An offer is not required to be in any particular form.
• The person who makes the offer is called the
offeror; the person to whom the offer is made is
the offeree.
• An offer can be made to one or more persons,
even the whole world.
• All terms of an offer must be communicated to the
offeree.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-12
Rules with respect to offer
- termination
• An offer can be revoked at any time before acceptance.
• Revocation must be communicated to offeree.
• An offer will lapse if:
1.
2.
3.
4.
not accepted within the time stated, or
within a reasonable time, or
if a counter offer is made, or
if a party loses its contractual capacity.
• An offer can be revoked at any time:
1. before acceptance, and
2. if communicated to the offeree.
• An offer will be terminated if rejected.
• Death of the offeree or offeror may terminate an offer.
• An offer will be terminated if a condition precedent is not met.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-13
Rules with respect to offer termination
Termination of offer
Rejection
Lapse
Conditional
offer
Revocation
Death of
offeree/offeror
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-14
Rules of acceptance
1.
Acceptance must be communicated to offeror by an
authorised person.
Exception: Offeror waives the right to receive
notification of acceptance.
Communication by post: (postal rule): If it is agreed
that post is the method of acceptance and the letter
is stamped and addressed correctly, acceptance
occurs when posted.
2. Acceptance relies on the knowledge of an offer.
3. Acceptance must be unqualified.
Acceptance can only be made by the offeree.
Acceptance must take place within a prescribed time or
within a reasonable time.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-15
Consideration
• Consideration can be regarded as
something done or promised by one
party (the promisor) in exchange for
something done or promised by the
other party (mutual promises).
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-16
Promisor and promisee
Promisor
• Person undertaking to perform the
consideration
Promisee
• Recipient of the consideration
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-17
Rules of consideration
1.
2.
3.
4.
5.
6.
Past consideration not valid for simple contract.
Amount of consideration is irrelevant.
Nature of consideration must be definite.
Consideration must be able to be performed.
Consideration must not be illegal or unlawful.
Consideration must extend beyond what person is
already obliged to do in terms of:
a) requirement by law
b) compliance with contract already existing.
7 Consideration must move from the promisee.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-18
Rules of consideration
(continued)
8.
9.
Part payment of a debt will not be adequate
consideration.
Consideration is essential in all simple contracts.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-19
Promissory estoppel
• If one party to a contract, by its behaviour, leads
the other party to the contract to believe a certain
state of affairs exists between them, the courts will
support that state of affairs rather than the terms of
the contract.
Elements
• The promisee has altered their position in reliance
on a new promise.
• It would be impossible for the promisee to return to
their original position without detriment.
• It would be unfair for the promisor to renege.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-20
Contracts required to be in writing
• Transfer of ownership of a British ship or
share in a ship
• Appointment of an agent where the agent
will be contracting by deed (Power of
Attorney)
• Bills of exchange and promissory notes
• Cheques
• Assignments and mortgages of life
insurance policies
• Assignment of copyright
• Contracts for marine insurance
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-21
Contracts required to be
evidenced in writing
Via
• Letters passing between parties
• Receipt for a deposit
• Cheque signed by the purchaser.
Copyright  2003 McGraw-Hill Australia Pty Ltd. PPTs t/a Fundamentals of Business Law 4e
Copyright © 2000 McGraw-Hill
by Barron & Fletcher. Slides prepared by Kay Fanning.
Australia
7-22