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
Types of Contracts
• Depending on the Client and Nature of the
works will depend on the type of contract
• Refer page 17 & 18
Types of Contracts P 20
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Lump Sum
Cost, plus a fee
Cost plus a percentage
Schedules of Rates
Labour Only
Do and Charge
Design & Construct
Building Contracts
Basic Structure
• Contract Period
- Specified Time for Contract to be completed
- Builder has Control of Site
• Practical Completion
- The works have reached a stage that is
suitable for use by the client
- Transfer of Works to client
- Insurance by Client
The Agreement
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Names Of Owner & Builder
Description of the Works – Tender/Qoute
Drawings/Specifications
Contract Sum
Contract Terms
Signatures
General Conditions
• Form of the Agreement
• Specifies the operation of the contract
-Dispute Resolution
- Payment Schedule
-Access by Client
- We will be look at a HIA Contract
Status Of Owner – Type of Contract
• Government – will have there own form or
may use standard form with their own terms
• Statutory Bodies – generally use government
conditions
• Large Companies – Will have their own terms
• Smaller Companies – Standard Form Contracts
Other Factors that may Affect the
Contract
• Lending Authorities – Payment Schedule, May
appoint Quantity Surveyor/ Clerk of Works,
Architect
• Type of Works – New Building, Renovation,
Civil Works
• Time Influences – May require contract to
start before full documentation is complete –
FAST TRACK
Other Factors that may Affect the
Contract
• Rising Cost– Provision may be made, Rise &
Fall Contract against fixed Cost
Definition - OVERHEADS
• Cost that are incurred that are not directly
attributable to the construction process.
Insurance – Overhead
Office Costs – Overhead
Bricks/ Bricklayers – Construction Cost
Foreman – Overhead
Carpenters – Construction Cost
Workers Compensation - Overhead
Types Of Contracting
Arrangements
• Lump Sum – Builder agrees to complete the
documented works for an agreed price.
Agreed price can only change by agreement
i.e. variation
Types Of Contracting
Arrangements
• Cost Plus Fee – Builder is paid for all material,
labour and subcontractor costs.
• In addition the builder receives a
predetermined fee to cover overheads + profit
Types Of Contracting
Arrangements
• Cost Plus Percentage – Builder is paid for all
material, labour and subcontractor costs.
• In addition the builder receives a set
percentage of costs to cover overheads and
profit
Types Of Contracting
Arrangements
• Schedule of Rates – A schedule of rates for
construction items is agreed.
• Agreed rates include profit & overhead
Brickwork Supply & Install $2.50 per brick
Wall Framing 2.4h Supply & Install
Supervised Carpenter $65 per hour
Types Of Contracting
Arrangements
• Labour Only – Agreement is to provide labour
only at an agreed rate for each trade.
The agreed rate covers the builders overheads
& profit.
• Clients usually provides materials
Types Of Contracting
Arrangements
• Do and Charge – Agreement has no fixed
price.
• Builder charges what they think is the value of
works
• Usually leads to disputes
Types Of Contracting
Arrangements
• Package Deal Design and Construct – Builder
is responsible for design and construction
based on parameters set by the client.
Standard Printed Contract Forms
• Australian Standards
• MBA
• HIA
• Department of Fair Trading
Definition – Subcontractor
• Contract Between the Builder and other
specialised organisations used to complete the
works that relate to the Head Contract.
Care should be taken to ensure that the same
terms are included as the “Head Contract”
• Good practice would be to use contracts from
the same organisation
Definition – Head Contract
• Contract Between the Client & Builder
Builder is called “Head Contractor”.
• This definition has applications outside the
contract.
• OH&S Law requires that Head Contractor
provide a safe work place.
HIA Contracts
HIA Contracts