CHAPTER 8 INTRODUCTION TO THE LAW OF CONTRACTS  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

CLASSIFICATION OF CONTRACTS Formality (formal/simple) Validity Formation Performance Unilateral and bilateral contracts  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT IS A VOID CONTRACT? In reality it is not a contract at all Example: an agreement where neither party intended to create legal rights The alleged contract is deemed void from the beginning (ab initio) As a result there are no legal rights and obligations Generally ownership of goods/property cannot pass under such an agreement  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT ARE VOIDABLE CONTRACTS? A valid contract that contains some defect in substance or manner of formation whereby one party then seeks to avoid it Initially such contract creates legal rights and obligations until one party either refuses to complete it or seeks to get out of it on legal grounds such as :- –Duress (see Barton v Armstrong) –Undue influence (see Allcard v Skinner).  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

EXECUTED AND EXECUTORY CONTRACTS Executed: where one or both parties in a contract have performed their side of the bargain Executory: where promises remain unperformed Example: Reggie buys a car from FG Motors for $12,000 and pays the money and receives delivery of the vehicle. Here the contract has been executed (performed).  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

BILATERIAL AND UNILATERAL CONTRACTS A bilateral contract is an exchange of promises (a promise for a promise) A unilateral contract involves the exchange of a promise for an act: see Carlill v Carbolic Smoke Ball Co Most offers of rewards for supply of information or return of stolen or lost property are usually recognised as unilateral contracts  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

ESSENTIAL ELEMENTS OF A CONTRACT (FROLIC) F: Form and/or consideration (value) R: Real or genuine consent by both parties O: Offer and acceptance (showing agreement) L: Legality: objectives of the contract are legal I: Intention by parties to create a contract C: Capacity of parties to make a contract (mental ability)  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

REMEDIES: BREACH OF CONTRACT/DEFECTIVE CONTRACTS Damages: money (the usual remedy at common law) Repudiation/rescission: terminate/end a contract Specific performance: carry out contractual obligations Injunction: prevent conduct/breach of contract Restitution: restore a benefit Rectification: change a contract Promissory estoppel: stop a promise being broken  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

TERMS OF A CONTRACT Not everything spoken or written in agreements creates legal rights Advertising gimmicks/promotions/representations prior to the contract may not be actionable under contract law unless part of the contract Actionable statements include: –Representations that form part of the contract –Important terms of the contract (conditions and warranties): see Tramways Advertising v Luna Park Ltd –Statements forming part of a collateral contract, a contract existing alongside the main contract –Terms implied by statute law eg Sale of Goods Act  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT IS THE LEGAL EFFECT IF YOU SIGN AN AGREEMENT? As a general rule, a party is legally bound by the terms of a written agreement that they have signed: L’Estrange v Graucob Ltd However not every signed agreement is automatically binding and there are several recognised exceptions: 1.Misrepresentation of the contents 2.Mistake about the document (non est factum) 3.The contract is unfair and oppressive (unconscionable) in the circumstances  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

CONDITIONS AND WARRANTIES Condition = An essential term of a contract. Breach of condition (serious breach) Terminate contract and/or Damages Warranty = A less essential term Breach of warranty (less serious breach) Damages only (no right to terminate) See Tramways Advertising v Luna Park Ltd  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

CONTRACTUAL TERMS (CONT) Intermediate terms –An intermediate term can take on the qualities of either a condition or a warranty –Serious breach = terminate contract –Minor breach = sue for damages but contract remains  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

CONDITIONS AND WARRATIES IMPLIED BY STATUTES Two examples of such statutes are: Sale of Goods Act 1923 (NSW) that implies a variety of conditions and warranties in favour of the buyer in contracts for sale of goods Trade Practices Act 1974 (Cth) that implies similar conditions and warranties both in the supply of goods and services NOTE: The new national consumer laws introduced in 2011 amend the TPAct and imply guarantees in place of conditions and warranties These statutes are covered in more detail in consumer protection laws in Chapters  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

THE PAROLE EVIDENCE RULE Applies to written agreements Also known as the “four corners rule” There is a presumption that when a contract is fully in writing it contains all the terms and conditions upon which the parties are in agreement (ie everything is contained inside the four corners of the document) Courts are reluctant to allow either party to introduce verbal (oral) evidence that contradicts or conflicts with the written agreement However the law does allow a number of exceptions  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

WHAT IS A CONTRACT? A contract may be described as an agreement made between two or more parties that creates rights and obligations that are recognised and enforced by the courts The laws applying to contracts mainly consist of Common law (judge made) Equity (judge made) Statute law (legislation)  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

FORMAL AMD SIMPLE CONTRACTS Formal contracts: written and signed and witnessed such as a Deed or Power of Attorney (valid because of their formality) Simple contracts: all other contracts that are not formal and include: –Fully written contracts –Contracts partly written and partly verbal –Contracts that are made verbally –Contracts that can be implied from the conduct of the parties As a general rule, all simple contracts require “consideration” from the parties to create legal rights and obligations  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

MATTERS AFFECTING A CONTRACT Many events may adversely affect a contract and result in a contract being declared void, voidable or unenforceable. Such matters include: Mistake Misrepresentation Duress Undue Influence Unconscionable conduct Technical defects (lack of writing /non payment of taxes) Statute laws (such as the Contracts Review Act or Frustrated Contracts Act)  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition

PRIVITY OF CONTRACT Common law principle that recognises it is only the parties to a contract who usually have legal rights and obligations In most cases legal benefits or burdens do not extend to those outside the contract (on the basis that it is a private arrangement intended only for those involved) This principle however does have exceptions, such as cheques and insurance, and has been limited both at common law and by statute laws  2011 Thomson Reuters Legal & Regulatory Ltd. All Rights Reserved. PowerPoint  slides to accompany A Guide to Business Law, 19 th Edition