Contract Law Principles

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What is a Contract?

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A contract is a legally binding and valid agreement between two parties. Its elements include intention to create legal relations, capacity to be bound,offer, acceptance and consideration.

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Principles of Offer

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1) An offer may be made to a particular person, a class of persons or to the world e.g. -Carlill v Carbolic Smokeball Company (1893).If someone is openly offering for a specific purpose or service, they must follow through with their promise or are allowing the contract to become void.

2) The offer must be communicated to the person accepting the offer. In other words, be clear and make sure you CLEARLY state your offer for the other person to accept.They have communicated to them that this is what they're offering and therefore the person has accepted while knowing what they’re entering into.

3) All terms of the offer must be communicated to the person accepting the offer and brought to his or her notice.e.g. Causer v Browne (1952) VLR 1 The offer must be clearly stated to the person accepting to ensure they are aware of what they are entering.

4) The offer may specify conditions to be followed by the person accepting the offer, so the person making the offer, may (if they wish) put terms and conditions in place that the person accepting, will have to follow if they choose to accept. All needs required need to be stated for the person to be aware of and are therefore signing the contract knowing what they're entering.

5) An offer can be withdrawn (revoked) at any time before acceptance.The person about to sign has the choice to withdraw the offer before they accept or sign an offer.

6) An offer will lapse:* If not accepted within the time stated, or; * If not accepted within a reasonable time If no particular time has been stated. So if there is an offer and a time stated, the person MUST accept the offer within that time.

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Invitation to Treat

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An invitation to make an offer is called an Invitation to treat. This invitation to treat is NOT an offer. It is a mere willingness to trade or deal. The customer can then choose to accept. Offer occurs when the cashier states the price. Therefore the shop assistant is allowed to refuse to sell Angie the item at the labelled price however, some store policies will allow the customer to have it at the advertised price just to keep them happy.

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Principles of Acceptance

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1) Acceptance must be actually communicated unless the offer requires an act to be done which does not have to be communicated to the person making the offer e.g. Felthouse v Bindley (1862) 11 CB(NS) 869

2) A qualified acceptance must not be made. An offer must be wholly accepted.

3) Any conditions stated in the offer must be followed before an acceptance can be said to have taken place e.g. Gilbert J McCaul Australia) Pty Ltd. V Pitt Club Limited (1957) 59 SR (NSW) 122

4) Acceptance can only be made by the parties to whom the offer was made

5) Once acceptance has been made, it can not be withdrawn except with the consent of the person making the offer.

6) As with an offer, acceptance must be made within the time prescribed, or if there is no time prescribed, it must be within a reasonable time

7) The person accepting the offer must know that it exists. No one can accept an offer if he or she does not know it exists

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Intent to Create Legal Relations

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It is essential that the parties entering into a contract intended to enter into a legally binding relationship. A court will look at the behaviour and intention. Small social arrangements tend to be disregarded. E.g.with close family members. These are not seen to have intent. (so a promise to meet and have dinner with someone). A contract can be "set aside" and made void if there is seen to be no intent or lack of legal capacity. Anything social is generally assumed to not be binding Anything commercial / with a company is as there is assumed to be an intent to be legally binding.

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Postal Acceptance Rule

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An exception to the Acceptance rule that an acceptance must be communicated. e.g. a man accepted and sent the letter within the prescribed time constituting acceptance, it is binding e.g. Adams v Lindell (1818) 106 ER 250.

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Legal Capacity

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Capacity refers to the ability certain people of classes or people have to be legally capable of entering into a contract or properly understand their obligations under a contract. Bankrupts, criminals, persons with mental illness, and some intoxicated persons are said to lack the capacity to enter into a contract.*GENERALLY infants (who are considered to be under the age of 18) are also NOT able to enter into contracts.Exceptions to this include contracts for necessaries, so for things that they need to enjoy life or be apart of life (shopping, employment etc. or a "contract for the benefit of the infant".) They may also buy shares and unless repudiated within a reasonable time of turning 18… they are binding. If they decide to keep it, this is ratification (giving consent to make it binding). So if it is not a continuing contract, they must ratify when they are 18 to make it binding.Generally, a contract will be binding on the adult in the contract but not the minor.

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Void

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The contract never existed due to invalidity.

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Voidable

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The contract existed, however, can be ended to some invalidity or inconsistency with the law. "Able to be void".

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Enforceable

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The contract is valid, both parties are obliged to fulfil the terms and the court may order them to do so.

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Mistake of Law

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People may try to get out of a contract if they claim they do not know the law. "ignorance of the law is no excuse".

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Mistake of Fact

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If a fact that is given, is a mistake, it’s still binding. (e.g. selling a 1980's car under the impression that it was actually a 2000 model.) it all depends on the value of something, and is it something that the person is really relying on in that contract? In other words, do your research when you buy a car just in case!!!

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Misrepresentation

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Saying something that is a lie to convince the other party to enter the contract. The other party is usually relying on that lie you told which is what made them enter he contract in the first place. (Fraud) contract is void

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Duress

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Being threatened violence or committing violence to someone to enter the contract.

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Undue Influence

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moral pressure; using your power to force someone to enter into a contract. In law there are set out relationships where undue influence is said to exist (parent and child, trustee and beneficiary, solicitor and client, physician and patient).

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Unconscionability

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Terms of a contract are set aside because they appear to be unjust, or unconscionable.

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Exemption / Exclusion Clause

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When a party is protected from being sued by the other party for damages, loss, negligence, non-performance, etc., or its liabilities are severely restricted. Behaviour must be consistent with clause as affirmed in Thorton v Shoe Lane Parking Ltd. (1971)

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Warranties

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A term of a Contract may be classified as a condition or a warranty. A warranty is minor to the main purpose of the contract. It is therefore not so vital as to affect a discharge of the contract. A breach of warranty only entitles the innocent party to an action for damages; he cannot treat the contract as discharged.

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Conditions

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A term of a Contract may be classified as a condition or a warranty. A condition is a term (oral or written) which goes directly 'to the root of the contract', or is so essential to its very nature that if it is broken the innocent party can treat the contract as discharged. That party will not therefore be bound to do anything further under that contract.

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Discharge of Contracts

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Discharge by Performance, Frustration, Breach (Actual and Anticipatory)

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Discharge by Performance

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Obligations of each party under contract are entirely filled e.g. Cutter v Powell (1795). Most contracts end this way.

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Discharge by Frustration

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In some cases a contract will be brought to an end because of a supervening event that is beyond the control of the parties. e.g Destruction of the Object e.g.Taylor v Caldwell (1863). Personal Incapacity e.g. Graves v Cohen (1929). Interference by the Government. Supervening Illegality.

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Discharge by Breach

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Usually means that one of the parties has either expressly or impliedly refused to perform their part of the contract. It can be actual or anticipatory breach.

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Actual

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One party fails to perform their promise at the required time, or commits an actual breach of a condition of the contract (an essential term). The breach will entitle the innocent party to terminate and may allow the aggrieved to claim damages e.g.Tramways Advertising Pty Ltd v Luna Park (1938).

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Anticipatory

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Anticipatory breach is when one party repudiates their obligation to perform a future promise and in such an instance, the innocent party may be entitled to terminate the contract and may bring an action for damages, irrespective of whether the date for performance has not yet arrived as in Vitol SA v Norelf (1996).

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Similarities of Discharge by Breach v Discharge by Frustration

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Both discharge by frustration and by breach result in the end of the contract. Both entail one or both parties being unable to or refusing to fulfill their obligations.There are a number of forms of frustration and a number of forms of breach.

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Differences of Discharge by Breach v Discharge by Frustration

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Frustration occurs beyond the control of one or both parties, whereas breach occurs due to events within the control of the parties. Breach can be actual or anticipatory, whilst Frustration can only be actual.

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Remedies

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Specific Performance, Injunctions, Damages.

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Specific Performance

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The court orders a party to carry out a particular act to try to right the breach e.g. Land.

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Injunctions

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"STOP order" An order by the court, preventing/restraining or stopping one party from carrying out a particular act or course of actions -> Non-compete clause.

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Damages

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Money: Usually a monetary penalty, where the respondent is ordered to compensate the aggrieved for the breach.