Contract Law – Business Integrals

Contracts

Elements of Contract

Offer	Expression of willingness to enter into contract on specified terms Intent and finality Must not be an ‘invitation to treat’ (invitation to make an offer, such as sale sign, auction or tender process) Unilateral contract – one party provides their consideration when entering into the contract. Other party cannot withdraw after part performance has taken place Can be revoked if withdrawal is communicated to the offeree Options – unilateral contract as consideration has been given to hold option open Subject to conditions – offer accepted or lapses after fulfilment of condition Counteroffer terminates the previous offer
Acceptance	Asset to offer – contract formation Can be accepted by conduct Objective approach – whether a reasonable person would consider it acceptance Subjective approach – whether there was a ‘meeting of the minds’ Timing – when sent by post, received by telecommunications or email received
Legal Intention	There must be an intention to create legal relations / be legally binding Commercial transactions (arms’ length)– burden is on party denying enforceability Non-commercial context – burden is on party alleging enforceability Family/personal context – presumption against legal intention Govt contracts – commercial vs policy Preliminary agreements (HOA, MOU) – binding if parties intend only on formalising the agreement or if it is conditional, not if parties are yet to agree on final terms
Consideration	Consideration must be given – something given in exchange for promise Benefit/detriment – Must benefit promisee and detriment promisor, can’t be illusory (unfettered discretion) Bargain – something of value must be exchanged (‘quid pro quo’), can’t be past consideration Must be sufficient, need not be adequate (can be nominal), additional consideration has no impact

Other Contract Considerations

Certainty

Are terms sufficiently certain and complete (the essential terms) or is it merely an agreement to agree?

Capacity

Do parties have legal capacity?

Writing

Does the contract need to be in writing? E.g. contracts for sale of land

Privity

Only parties to a contract can enforce it and have obligations under it – not third parties
Exceptions: assignment, agency (acting on behalf of a party)
Ways around it: trust, estoppel, tort

Assignment and Novation

Assignment – assign rights under contract
Novation – substitute new contract and assign rights and obligations

Deed

Promise under seal – enforced by solemnity of promise
No consideration needed, unlike contract
Longer limitation period (period of time to bring an action in court) of 12 years instead of 6

Contract of Carriage

Contract for transport of goods between consignor and consignee

Trusts

Legal relationship (not structure) involving separation of legal and beneficial interests – Settlor (original owner of property) gives legal title to trustee and equitable title to beneficiary

Trust ends when legal title is transferred to beneficiary
Three essential elements of a trust:
- Trustee, beneficiary and trust property

Fixed trust – trustee has no discretion over distribution of property
Discretionary trust – trustee has discretion

Trustees have many duties, including fiduciary duties, duty to invest and insure, keep accounts
Trustees also have powers – to appoint beneficiaries, manage the trust, sell property
Beneficiaries have rights to compel performance and extinguish the trust

Express Trust	Created by parties
Implied – Resulting Trust	Intended but improperly created by parties – imposed by court e.g. unequal contributions to purchase price (except for husband and wife). Property ‘results back’ to purchaser, unless presumption of advancement applies (gift)
Implied – Constructive Trust	No intention to create trust by parties but imposed by court

Elements of Trust

Types of Trusts
Unit Trust	Used for investment purposes – company vests property to a trustee and divides beneficial interest into units, purchased by investors. Advantages: doesn’t affect share capital
Trading Trust	Running business for beneficiaries
Family Trust	Distribution of income amongst family members
Superannuation Trust	Defined benefit and defined contribution schemes

Requirements for Creation of Express Trust
Certainty	Intention of settlor – to create trust Subject matter – property Objects – specific or class of beneficiaries
Proper Constitution	Settlor must transfer property, declare trust or receive direction from beneficiary to create new trust
Writing	Must be in writing when property is land

Remedies

Damages	Monetary amount provided as a substitute for performance
Specific Performance	Directing party in breach to complete performance under the contract
Admin law remedies	Certiorari – quash a decision Prohibition – restraint Mandamus – compel fulfillment of duty Habeas corpus – order of a prisoner’s release
Admin equitable remedies	Injunction, declaration – statement of rights

Recovery of Debt

Debt (amounts owed under contract) are recoverable if the entire obligations are substantially performed, and reduced for any services not rendered

Misrepresentation

False statement made by one party induces the other party to enter into the contract

Elements – statement of fact and reliance
Damages – recission (set aside contract from beginning) or damages if negligence present
ACL misleading and deceptive conduct applies to consumer and commercial contexts
Person relied on erroneous assumption in the course of business, can’t be excluded
General law misrepresentation used outside of this

Mistake

Where a party or both parties rely on a false assumption

Remedies may be available under equity, not common law

Damages

Liquidated Damages

Agreed sum – amount specified in a contract that one party will pay another due to breach. Should be a genuine pre-estimate of damage suffered (proportionate to the loss and not extravagant), otherwise it will be a penalty, which is not enforceable under law.

Unliquidated Damages

Damages for breach (amount not estimated in advance)

Expectation, reliance or loss of change damages
Unjust enrichment (of defendant) / account of profits, though Australian law doesn’t support restitutionary damages

To award damages, a court considers:

Causation – ‘but for’ test
Remoteness – foreseeability, in reasonable contemplation of the parties. Ordinary not extraordinary losses
Mitigation – plaintiff must take reasonable steps to minimise losses

Non-pecuniary Losses

Disappointment, distress – awarded if the purpose of the contract was to provide enjoyment e.g. cruise

Contributory Negligence

Reduces damages awarded

Estoppel

Can’t deviate from a representation between representor and relying party

Where there is detrimental reliance on a promise or contract but no consideration or a person is not a party to a contract, they cannot seek remedies under contract law
- Common Law Estoppel – relates to facts / the acts of parties
- Equitable Estoppel – relates to representations of future conduct
- Proprietary – restricts unconscionable assertion of legal title
- Promissory – enforcement of other promise

Elements

Inducement
Reliance
Detriment/loss
Unconscionability – departure from an assumption

If there is inconsistent transfer of title (e.g. transfer of legal and equitable interests separately), generally legal takes priority

Contract Considerations

Standard form/ adhesion/ boilerplate contracts

Generally non-negotiable
Unfair and unjust terms in standard form consumer contracts are rendered void by ACL

Parole Evidence Rule

Prevents extrinsic evidence being used to identify terms of a contract

Except where the contract is not wholly in writing, collateral contract or estoppel
Extrinsic evidence can be used to determine whether a contract is wholly in writing
Construe those terms (construction is process of court objectively giving meaning to terms)
Except where there is ambiguity

If a statement made during negotiations is used, it is either:

Promissory – forms part of contract; or
Representational – doesn’t form part and only remedy is in misleading and deceptive conduct

Collateral Contract

Promise made to induce the promisee to enter the main contract

Signature

If someone signs a contract, they are bound whether or not they have read the terms.

Exceptions:

Vitiating factors:

Fraud
Misrepresentation
Misleading or deceptive conduct
Duress – can render contract void
Undue influence (impairs judgement)
Unconscionable dealing (exploitation of disability)
Unconscionable conduct under ACL – consumer and business transactions
Terms are unusual or onerous and attention is not drawn to them through reasonable notice

Incorporation of Terms into an Agreement

By notice
Timing – before the agreement was formed
Knowledge that there are additional terms or reasonable notice of them
Incorporation by course of dealings – where the terms had been incorporated in the past

Exclusion Clauses

Limit or exclude liability or receive indemnity from other party for loss
Australian Consumer Law: ss 64 and 64A of Act prohibit exclusion of ACL guarantees, but not limiting of liability to resupplying goods or services, unless this is not fair or reasonable
Common Law: exclusion clauses construed contra proferentem, against the party seeking to rely on it

Frustration

External circumstances make completion of the contract impossible
Rights an obligations remain in place but parties discharged from future obligations

Implied Terms
By law	In all contracts of that category
By fact	Necessary to give business efficacy to the contract
By custom	Applies in contracts in that industry
By Statute	By Acts, e.g. ACL

Termination

If a party has a right to terminate (not just the remedy of damages), it can elect to terminate or affirm the contract

If it terminates, accrued/existing rights and obligations remain, but future performance is excused

Means of Termination
By Agreement	Express clause in contract Expiry At will/for convenience For breach – entitlement to terminate for ‘conditions’ or damages for ‘warranties’ Subsequent agreement terminating the contract (express or inferred Implied right to terminate – parties did not intend contract to continue forever Abandonment by conduct
Contingent Conditions	Formation – contract not formed until condition satisfied Performance – contract formed but may be ended Condition precedent – contract/performance exists only after condition is fulfilled Condition subsequent – contract/performance has already started, then terminated if condition is not fulfilled Duty to cooperate – parties must attempt to fulfil condition
Repudiation	Party no longer intends to abide by the contract, inferred through: Express statement/ notification Conduct Erroneous interpretation of terms
Delay	Delay amounting to: Breach, if ‘time is of the essence’ Repudiation