LAW1100 Lecture 6 notes 01.docx

LAW1100 Lecture 6 notes 01.docx

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LAW1100Lecture6notes01

EdithCowanUniversity

2011

LEGALFRAMEWORKI

LECTURENOTES

Notetoreader:

theselecturenotesarecompiledforthepurposesoftheunitLAW1100LegalFrameworkIandareselectiveinnatureandscope.Thenotesareforacademicpurposesonly.

Lecture6

LawofContract:

1stessentialofContract

INTRODUCTION

TheareaofContractLawisvast,andthelecturesonContractareintendedtogiveonlyanoverviewoftheprinciplesinvolvedandtheruleswhichareappliedbytheCourtstoresolvemattersofcontract.OurfocusintheLawofContractoverthenextfivelectureswillbeonthenatureofcontracts,theessentialrequirementstomakeavalidandenforceablecontract,genuineconsentandvoidablecontracts,contractualterms,thedischargeofthecontract,andremediesintheeventofbreach.

Onsuccessfulcompletionofthislecture,youshould（withinthescopeofthecourse）beableto:

∙define‘contract’,anddescribethethreeessentialsrequiredforavalidsimplecontract

∙identifythesourcesofcontractlaw

∙understandthatatcommonlaw,nospecialformatisrequiredalthoughsomestatutesrequireotherwise

∙understandwhatismeantbyvoid,voidable,unenforceableandvalidcontracts

∙distinguishbetweensimpleandformalcontracts

∙defineofferandacceptance

∙describeandexplaintherulesforcreatingavalidoffer

∙describeandexplaintherulesforcreatingavalidacceptance

∙identifyanddescribethewaysinwhichanofferterminates

∙identifyanddescribethepossibleresponsestoanoffer

Definition

Acontractisalegallybindingandenforceableagreement（distinguishfromasocialagreement）.Thisreflectstheessentialconsensualrelationshipbetweentheparties,andthenotionoflegalrightsandobligationswhichtakeeffectfromtheprocessofagreementratherthanthoseimposedbyLaw.

Importanceofcontractlaw

Contractlawisfundamentaltocarryingonofbusinessandcommerce,especiallyintermsoftheenforceabilityofpromisesmade.Itgivestothebusinesscommunitytherequisiteconfidencetomakeagreements.

Sourcesofcontractlaw

Therearetwosourcesofcontractlaw.Caselawistheprimarysource,withanumberofstatutesprovidingadditionalrulesandprinciples（forexample,StatuteofFrauds,FairTradingAct,CompetitionandConsumerAct[previously,theTradePracticesAct]）.

Formofcontract

AtCommonLaw,thereisnospecialformofwritingrequired（i.e.canbeenteredintobyspokenwordsorconduct）.However,understatute,somecontractsmustbeinwritingtobevalid（e.g.consumercreditcontracts）,andsomecontractsmustbeinwritingtobeenforceable（e.g.contractsofguarantee）.

Clarificationoflegalterminology

Priortocommencingourdiscussionofthevariouscontractlawprinciples,itisimportanttoestablishtoclarifythemeaningofsometermswhichwillcropupregularlyinthediscussion:

void,valid,voidable,unenforceable,simplecontract（asdistinguishedfromtheformalcontract）,offerorandofferee.

Thesetermseachhavetheirownspecialmeaninginlaw,andareunfortunatelysometimesusedlooselyorconfusinglyinparticularcontexts.ThewordsareusedthroughoutthelecturesonContract,andalsoappearwidelyinlegaltexts.Itisimportantthatcleardefinitionsareestablishedfromthebeginning,and,forthepurposeofthisunit,thefollowingdefinitionsapply:

‘Void’contract

Voidmeanslegallynonexistentandhavingnolegaleffect.Asupposedcontractisvoidwhen,forexample,anyoneormoreofthethreeessentialsismissing.Thereareotherwaysinwhichacontractistreatedasvoid,althoughfailureofanyofthethreeessentials,forourpurposes,willsuffice.Asaresult,thecontractisinvalidatedfromthestart-itwasneverinexistenceinthefirstplace.Thepartiesareentitledtoreturntotheiroriginalpositionsbyreturnofpropertyandmoneyetc.Suchresumptionofthestatusquoanteisnotalwayspossible,butthecourtswillassisttheparties,somuchaspossible,toreturntothesituationpriortothecommencementoftheapparentcontract.

Validcontract

Avalidcontractisonethatisnotvoid,andwillsatisfyatleastthethreeessentials.However,avalidcontractmay,inparticularcircumstances,beeithervoidableorunenforceable.

Voidablecontract

Avoidablecontractisavalidcontractuntil‘avoided’.Thatis,thelawincertaincircumstancesprovidesoneofthepartieswiththerighttotreatthecontractasneverhavingexisted.Inotherwords,thepartytowhomtherightisgivencan‘avoid’thecontractattheiroption.Throughtheexercisingofthisrightbytheparticularparty,thepartiesarereturnedtotheiroriginalpositionsbyreturnofproperty,moneyandsoon.Theactof‘avoidance’isknownasrescission（inthestrictusageoftheword）andismostoftenonlyallowedbythecourtswherethepartiescanreturnwhollyorsubstantiallytotheirpre-contractualpositions.Aswewillsee,thecourtsconferthisrightontheinnocentpartywheregenuineconsentislackinginenteringthecontract.Pleasenotethattheterm‘rescission’canalsobeusedinalooserusagewhichrelatestoterminationofthecontractforbreach,butthewordisnotusedinthissenseinthisunit.

Unenforceablecontract

Anunenforceablecontractmayalsobevalid,butthepartiesaredeniedcourtassistanceintheenforcementofthecontract,suchaswhereaguaranteeisnotinwriting（obviously,asupposedcontractthatisfoundtobevoid（i.e.itnevercomesintoexistencedespitewhatthepartieshadthought）isclearlyunenforceable）.

Simplecontractvformalcontract

MostofthecontractsenteredintoinAustraliaareclassifiedas‘simplecontracts’,andinclude:

∙alloralcontracts;

∙allcontractspartlyoralandpartlywritten;

∙allcontractsinwritingwhicharenotContractsunderSeal.

SimpleContractscanbecontrastedwithContractsunderSeal,whicharealsocalledDeeds.ContractsunderSealareclassifiedasformalcontractsbecausetheirvalidityderivesfromtheirform,whilstsimplecontracts,undercommonlawatleast,neednoparticularformbutrequiretheelementofconsideration,or‘somethingforsomething’betweentheparties（wediscuss‘consideration’indetaillater）（thereisanothertypeofformalcontractknownasaContractofRecord,andcoverscourtorderssuchasgoodbehaviourbondsandbailbonds）.Inearliertimes,ContractsunderSealhadtobesigned,sealedanddelivered.Thisinvolvedtheuseofsealingwaxandtheimprintingofone’ssignatureorcoatofarmsinwax.Asaresultofmodernlegislation,thelawmerelyrequiresthatthedocumentindicatesanintentiontosealandtodeliver,withasignatureattestedbyawitnessbeingsufficient.Manydonationstoindividualsorcharitiesmaybeevidencedbydeeds.Thereasonisthatifthegiftwasnotevidencedinthismanner,thebeneficiariesofthetransactioncouldnotenforcethepromisetodonateagainstthedonorifheorshereneged（because,aswewillseelater,thethirdessentialof‘consideration’islacking）.

OfferorvOfferee

Offeroristhepersonmakinganofferorcounteroffer;offereeisthepersonreceivingtheofferorcounteroffer.

ESSENTIALSTOCREATEAVALIDSIMPLECONTRACT

Therearethreeessentialswhichmustfirstexistinordertocreateavalidandlegallyenforceablesimplecontract:

（i）Agreementintheformofanofferandacceptance;

（ii）Intentiontocreatelegalrelations;and

（iii）Consideration.

Ifanyofthesethreeelementsaremissing,asimplecontractcannotcomeintoexistenceandtheCourtswillnotenforcetheagreementortransaction.Oncethethreeessentialshavebeensatisfied,thereisaprimafaciepresumptionthatavalidandbindingcontractexists.However,thispresumptioncanbeaffectedby:

（iv）alackofgenuineconsentintheagreementbetweentheparties;

（v）alackoflegalcapacityintheagreementbetweentheparties,suchasoneofthepartiesbeingunderage;and

（vi）thelegalityofobjects,wheretheobjectofthecontractisdisapprovedofbylaw

Insomelawbooks,thesethreeelementsareaddedtothe‘threeessentials’tomakethe‘sixessentials’ofcontracts.Eachelementwillaffectthebindingnatureofthecontract,althoughdonotnecessarilyaffectthevalidityofthecontract.However,theformofthecontract,aswehaveseen,canaffectthevalidityortheenforceabilityofthecontract,where,forexample,acontractrequiredbylegislationtobeevidencedinwritingismadeorally.Theissuesoflegalcapacityandlegalityoftheobjectsarenotwithinthescopeofthisunit,andarenotdiscussedfurther.However,genuineconsent（withtheexceptionof‘mistake’）isdiscussedindetail,andthiselement,withinthescopeofthisunit,affectsthebindingnatureofacontractratherthanthevalidityofacontract.

Hence,forthepurposesofthisunit,thevalidityofasimplecontract,atcommonlaw,issatisfiedbythethreeessentialsasstated.

FIRSTESSENTIAL-agreementintheformofofferandacceptance

Anofferisadefiniteundertakingorpromisemadewiththeintentionthatitshallbecomebindingonthepersonmakingitassoonasitisacceptedbythepersontowhomitisaddressed.Anacceptanceisavalidresponsetoanofferwhichcreatestheagreement.

RulesastoOffer

Offercanbeexpressedorimplied

Offerscanbeexpressedorimplied.Anexampleofanexpressedofferisonemadeviawordsspokenorwritten.Forexample,JacksaystoJill:

“Ioffertobuyyourcarfor$5000”.Animpliedofferisimpliedviaconductorbehaviour.Forexample,Jacktakesgroceriestothecheck-outatasupermarketandbyhisconductmakesanimpliedoffertobuyth