 Contract law is concerned with the enforcement of agreements. A contract can be defined as an agreement between two or more parties that creates rights and obligations that are enforceable by law.

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 Some actors and singers are not only in the news because they are famous sometimes they receive media attention because there has been a breach of contract. Consider the claim by The Veronicas, that a clothing company that had the exclusive rights to sell their merchandise had failed to pass on the profits as required in the contract. The Veronicas, a band formed by sisters Jessica and Lisa Origliasso, also claimed the company had spent less on marketing than was required in the contract.  In another case receiving media attention, Bonner v. Fauna Productions Pty Ltd [2009] NSWSC 604, the plaintiff was actor Tony Bonner, who was the helicopter pilot on the popular television show Skippy. The program was produced in the 1960s and exported worldwide. Bonner, who was paid for his work on the show was seeking $ as ‘residuals’ (an extra payment) due to the show's success. The New South Wales Supreme Court dismissed the claim, stating that Bonner was paid for his services in accordance with the contract.

 Definition: A contract is a legal agreement that can be enforced by law  Eg: If you enter a contract to purchase a new refrigerator, the shop has a right to receive the agreed amount of money from you, but it also has an obligation to provide you with the refrigerator and you have an obligation to hand over the agreed payment and a right to receive the product.

 Most people believe that contracts belong only to the world of commerce. This, of course, is not correct as most of us enter into contracts on a daily basis. Purchasing a bus ticket or a drink from a vending machine constitute legally enforceable contracts.  These types of contracts are straightforward in nature with no need for formality. No words even need to be spoken. Other contracts, such as one for the purchase of a house, involve a document that all parties sign.  If the agreed contractual terms are breached, the injured party may have the right to terminate the contract and the right to claim compensation for any loss suffered as a result.  Not all the agreements you make will be enforceable. To be valid, a contract must meet three essential elements:

 Is a $10 bet between two friends a valid contract? The answer is ‘no’ because the courts assume that social agreements are made without the intention of being enforceable. A domestic agreement, for example, where a father agrees to pay his child $20 to mow the lawn, is also not a contract.  On the other hand, courts assume that business agreements are intended to create a legal relationship. Contracts are very important in the world of commerce because they form the basis of most business activity.

 Agreement is the second element of a valid contract. A contract is formed when one party (the offeror) makes an offer to enter a contract and the other party (the offeree) accepts the offer.  A clear understanding of what has been agreed to should exist. In contract law this is referred to as a ‘meeting of the minds’. However, it is not always clear if there has been a meeting of the minds and the court is asked to decide what the terms of the contract were.

 In Clarke v. Dunraven [1897] AC 59, the parties were participants in a yacht race. They had each signed a letter stating they would abide by the club rules. One of these rules provided that the owner of a yacht that fouled another competitor would be liable for the damages. During the race Dunraven's boat was sunk by Clarke's boat and Dunraven wanted damages. Was there an agreement between the two competing yachtsmen? The court held that even though there was no direct relationship between them, an agreement still existed. Therefore, Clarke had to compensate Dunraven for the loss of his boat.

 An offer is the first step in reaching an agreement. What is being offered should be clear enough so that the offeree can decide whether to accept or reject the offer. Offers can be in writing, oral or made by action and be made to:  1.) An individual, for example, Jake offers Brad a CD for $10  2.) A specific group, for example, Christina offers to sell her laptop to anyone in Year 11B at her school  3.) The world at large, for example, an offer in an advertisement is open to anyone who sees it.

 The rule that an offer can be made to anyone in the whole world was established in Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256. In this case an advertisement was placed in several newspapers offering a reward of £100 to anyone who caught influenza after using a smoke ball. Mrs Carlill used the ball as directed but still contracted influenza. However, the company refused to pay her the reward money. The court found that an offer of a reward did not have to be made to one specific person; it could be made to the whole world; therefore, Mrs Carlill won the case.

 The courts also have ruled that there is a distinction between an offer and an invitation to treat. The word ‘treat’ is an old English word meaning negotiate or bargain. Common law provides that goods on display, for example, those in a supermarket, represent an invitation to treat and are not an actual offer. By picking up an item and taking it to the checkout you are the party making the offer. The checkout operator can then reject or accept your offer. Next time you are in a supermarket try this — offer less money than the advertised price and see if your offer is accepted!

 Also, there is a difference between an offer and a counteroffer. Imagine a scene where Adam says to Simon, ‘I'll sell you my surfboard for $300’. Simon replies, ‘I will give you $200’. Simon has made a counter offer and it is up to Adam to accept or reject it.

 Acceptance of an offer can be made in writing, orally, or by conduct. For acceptance to occur it must conform to any conditions set by the offeror. For instance, the offer may specify that acceptance must be in writing. This must be followed exactly or the  Acceptance must be clearly communicated to the offeror. Silence does not constitute acceptance. If Gerard writes to Paul stating, ‘You can have my car for $5000 and, if I do not hear from you by Friday, I will assume you have accepted the offer’, Gerard cannot then rely on Paul's silence to mean acceptance. Also, conditional consent is not regarded as acceptance; for example, the offeree states he or she accepts the offer on the condition that a formal contract is prepared. This is not acceptance. It is a counter offer.

 Consideration is the third element of a valid contract. It is the ‘price’ one party pays to buy the promise of the other party.  A common form of consideration is a sum of money. Assume Mary promises to sell her Legal Studies textbook to George for $30. Under this agreement, both parties have made promises. Mary promises to hand over her textbook and, in return, George promises to hand over $30. Consideration exists in the form of a textbook and an agreed sum of money.

 Contract law makes a distinction between a valid contract and promises that are made where no consideration is given. If your parents promise you a car for your eighteenth birthday this is a gratuitous promise — a gift that is freely given. If your parents break their promise you cannot enforce it.

 10.1 Questions:  2.) Explain why a domestic arrangement is not considered a contract.  3.) Explain the difference between an offer and an invitation to treat.  6.) For each of the following situations, decide whether or not an intention to create a legal relationship exists.  A.) Zac agrees with his mother that he will mow the lawn every two weeks.  B.) Louise agrees with the estate agent that she will rent the new apartment.  C.) Alec offers the job of sales assistant to Jillian.

 7.) Decide whether or not all three elements of a contract are present in the following cases. Give reasons for your answers.  A.) Dale put money in a vending machine to purchase a drink. He took the drink released by the machine.  B.) Robert wrote a letter to Jennifer offering to sell his horse to her for $700. In the letter he stated, ‘If I do not hear from you in writing by the end of next week I will assume that you have accepted my offer.’ Jennifer did not reply to the letter.  C.) A major retail store placed brochures in residential letterboxes advertising its pre-Christmas sale bargains.