Australian contract law
Encyclopedia
Australian contract law is based on the inherited English contract law
, with specific statutory modifications of principles in some areas. Australian law has developed through the decisions of Australian courts
, especially since the 1980s, and various pieces of legislation passed by the Parliament of Australia
and by the various states and territories. See contract law for very general doctrines relating to contract law. In Australia, the law of equity has also played an increasing part in changing the laws regarding contracts, and what occurs when they are breached.
(generally, the supply of money, property or services however anything will suffice as consideration be it money, or a promise to undertake, or not undertake a particular act); (3) Capacity to enter legal relations. E.g. Of sound mind and legal age (4) Intention by the parties to enter into legal relations (private non-commercial agreements between family members may not necessarily constitute a contract as intention to create legal relations is often not present) and (5) Formalities - In most jurisdictions contracts do not need to be represented in writing however exceptions apply. (6) Certainty.
The foundation of the legal relations called contract is the agreement of the parties. In order for an agreement to be a contract (or a variation to an existing contract) it must be supported by consideration. The agreement must also be sufficiently certain and complete to be enforced in the courts and the parties must have intended their agreement to be a contract. The absence of any of these elements will signify either that there is in law no agreement or that the agreement is not enforceable as a contract.
An offer indicates an intention by the offeror to be bound without further discussion or negotiation, on acceptance of the terms set out. It's distinguished from an "invitation to treat
", which is a request to others to make offers to engage in negotiations with a contract in mind. An offer may be made to become liable to anyone who, before it is withdrawn, accepts the offer. It may be restricted to certain classes of people; or on the other hand be made to anyone who, before it is withdrawn, accepts the offer, including unascertained persons, or to the public at large. However, an offer is ineffective until it has been communicated, either by the offeror or a third person acting with the offeror's authority.
An acceptance of the offer resulting in a binding contract must take place with knowledge of the offer and an intention to accept the offer. Although acceptance need not be express and may be implied from conduct, it must correspond with the offer; be unequivocal; and in general, be communicated to the offeror. Where a purported acceptance proposes one or more additional or different terms it is ineffective as an acceptance, unless the variation is solely in favour of the offeror. A purported acceptance will also be ineffective if made at a time when the offer has lapsed by virtue of time; if it is made subject to a contingency and that contingency ceases to exist; if the offeror dies and the offeree has notice of this fact; by the revocation of the offeror or the rejection by the offeree.
It should be noted, however, that the rules of offer and acceprance are merely "an aid to analysis", and may sometimes prove inconclusive or artificial. A contract can be made without an identifiable offer and acceptance, provided the parties have manifested their mutual assent. The "acid test
" in a case where offer and acceptance cannot be identified, according to Justice Cooke
in Meates v Attorney-General, "is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain."
"Consideration" in this context means that a promise is given in return for a promise received. The usage of the word derives from expressions such as: "I will give you ten pounds in consideration of the apples you are delivering to me."
The case law reflect the tension between, on the one hand, the desire to hold parties to their bargains in accordance with the principle pacta sunt servanda
and, on the other hand, the courts' reluctance to make a bargain for the parties. Although there have been differences in Australian judicial opinion as to the role of the court in giving effect to a contract, in general the courts give primacy to the need to uphold agreements, particularly executed agreements and commercial arrangements.
Apart from the terms expressly agreed, by reason of what the parties have written or said, implied terms may also exist, to impose obligations on either or both of the parties or to qualify the terms of their bargain. Although some statements made before the contract was entered into may be intended to operate as terms, not all such statements operate as terms.
or because it infringes a rule of public policy
.
There are similar implied terms under the Australian Consumer Law relating to fitness and duty to take reasonable care in some classes of contract, and these particular terms are unable to be displaced by contrary intention: that is, the term will be implied into a contract of that kind irrespective of the parties' intention.
The Australian Consumer Law, together with Fair Trading legislation in all states, also allows a corporation or person to be sued where they have engaged in misleading or deceptive conduct regarding commercial or trade matters.
A number of Australian cases have introduced the concept of acting "unconscionably" as a reason for overturning the validity of a contract: Commonwealth v Verwayen, or where one party is at a "special disadvantage": Commercial Bank of Australia Ltd v Amadio
.
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
, with specific statutory modifications of principles in some areas. Australian law has developed through the decisions of Australian courts
Australian court hierarchy
There are two streams within the hierarchy of Australian courts, the federal stream and the state and territory stream. While the federal courts and the court systems in each state and territory are separate, the High Court of Australia remains the ultimate court of appeal for the Australian...
, especially since the 1980s, and various pieces of legislation passed by the Parliament of Australia
Parliament of Australia
The Parliament of Australia, also known as the Commonwealth Parliament or Federal Parliament, is the legislative branch of the government of Australia. It is bicameral, largely modelled in the Westminster tradition, but with some influences from the United States Congress...
and by the various states and territories. See contract law for very general doctrines relating to contract law. In Australia, the law of equity has also played an increasing part in changing the laws regarding contracts, and what occurs when they are breached.
Formation
There are six essential elements necessary for legally binding contract formation: (1) an agreement (offer and acceptance); (2) considerationConsideration
Consideration is the central concept in the common law of contracts and is required, in most cases, for a contract to be enforceable. Consideration is the price one pays for another's promise. It can take a number of forms: money, property, a promise, the doing of an act, or even refraining from...
(generally, the supply of money, property or services however anything will suffice as consideration be it money, or a promise to undertake, or not undertake a particular act); (3) Capacity to enter legal relations. E.g. Of sound mind and legal age (4) Intention by the parties to enter into legal relations (private non-commercial agreements between family members may not necessarily constitute a contract as intention to create legal relations is often not present) and (5) Formalities - In most jurisdictions contracts do not need to be represented in writing however exceptions apply. (6) Certainty.
The foundation of the legal relations called contract is the agreement of the parties. In order for an agreement to be a contract (or a variation to an existing contract) it must be supported by consideration. The agreement must also be sufficiently certain and complete to be enforced in the courts and the parties must have intended their agreement to be a contract. The absence of any of these elements will signify either that there is in law no agreement or that the agreement is not enforceable as a contract.
Agreement
The existence of an agreement between the parties is usually analysed through the rules of offer and acceptance. This may be expressed as a clear indication ("offer") by one party (the "offeror") of a willingness to be bound on certain terms accompanied by a communication by the other party (the "offeree") to the offeror of an unqualified assent to that offer ("acceptance").An offer indicates an intention by the offeror to be bound without further discussion or negotiation, on acceptance of the terms set out. It's distinguished from an "invitation to treat
Invitation to treat
Invitation to treat is a contract law term. It comes from the Latin phrase invitatio ad offerendum and means "inviting an offer". Or as Andrew Burrows writes, an invitation to treat is...
", which is a request to others to make offers to engage in negotiations with a contract in mind. An offer may be made to become liable to anyone who, before it is withdrawn, accepts the offer. It may be restricted to certain classes of people; or on the other hand be made to anyone who, before it is withdrawn, accepts the offer, including unascertained persons, or to the public at large. However, an offer is ineffective until it has been communicated, either by the offeror or a third person acting with the offeror's authority.
An acceptance of the offer resulting in a binding contract must take place with knowledge of the offer and an intention to accept the offer. Although acceptance need not be express and may be implied from conduct, it must correspond with the offer; be unequivocal; and in general, be communicated to the offeror. Where a purported acceptance proposes one or more additional or different terms it is ineffective as an acceptance, unless the variation is solely in favour of the offeror. A purported acceptance will also be ineffective if made at a time when the offer has lapsed by virtue of time; if it is made subject to a contingency and that contingency ceases to exist; if the offeror dies and the offeree has notice of this fact; by the revocation of the offeror or the rejection by the offeree.
It should be noted, however, that the rules of offer and acceprance are merely "an aid to analysis", and may sometimes prove inconclusive or artificial. A contract can be made without an identifiable offer and acceptance, provided the parties have manifested their mutual assent. The "acid test
Acid Test
Acid test or acid tests may refer to:*Acid test , a chemical or metallurgical test which uses acid, now also used as a general term for "verified", "approved", or "tested" in a large number of fields...
" in a case where offer and acceptance cannot be identified, according to Justice Cooke
Robin Cooke, Baron Cooke of Thorndon
-External links:*, The Times, 22 September 2006*, The Daily Telegraph, 26 September 2006* House of Lords minutes of proceedings, 9 October 2006*, 4 September 2006...
in Meates v Attorney-General, "is whether, viewed as a whole and objectively from the point of view of reasonable persons on both sides, the dealings show a concluded bargain."
Consideration
The second element necessary for contract formation is consideration. A promise will be enforceable at common law only if it is supported by consideration or made under seal. Consideration can be anything from money to a promise to undertake or not undertake a particular act, even a mere peppercorn could suffice."Consideration" in this context means that a promise is given in return for a promise received. The usage of the word derives from expressions such as: "I will give you ten pounds in consideration of the apples you are delivering to me."
Capacity
Contractual capacity refers to the ability of a party to enter into a legally binding contract. Minors, drunks and the mentally impaired may not possess adequate capacity however the ordinary reasonably person is presumed by default to have contractual capacity.Intention
The third element is that the parties must manifest an intention to create legal relations. The intention requirement has often been approached on the basis that parties to commercial arrangements are presumed to intend legal consequences, while parties to social or domestic agreements are presumed not to intend legal consequences. Such presumptions determine who bears the onus of proof.Formalities
In most jurisdictions contracts do not need to be represented in writing but exceptions apply. Oral contract are as enforceable as written contracts. However, there are a number of exceptions that have been created by statute. Examples are marine insurance which to be binding must be documented in written form. Also consumer credit must be documented in written form with a copy provided to the consumer. These requirements have been put in place by statute in order to protect consumers and/or prevent such acts as fraud.Certainty
For contract formation the agreement must be sufficiently certain and sufficiently complete that the parties' rights and obligations can be identified and enforced. The topic of certainty encompasses three related and often overlapping problems:- 1. The agreement may be incomplete because the parties have failed to reach agreement on all of the essential elements or have decided that an essential matter should be determined by future agreement.
- 2. The agreement may be uncertain because the terms are too vague or ambiguous for a meaning to be attributed by a court.
- 3. A particular promise may be illusory because the contract effectively gives the promisor an unfettered discretion as to whether to perform the promise.
The case law reflect the tension between, on the one hand, the desire to hold parties to their bargains in accordance with the principle pacta sunt servanda
Pacta sunt servanda
Pacta sunt servanda , is a brocard, a basic principle of civil law and of international law.In its most common sense, the principle refers to private contracts, stressing that contained clauses are law between the parties, and implies that nonfulfilment of respective obligations is a breach of the...
and, on the other hand, the courts' reluctance to make a bargain for the parties. Although there have been differences in Australian judicial opinion as to the role of the court in giving effect to a contract, in general the courts give primacy to the need to uphold agreements, particularly executed agreements and commercial arrangements.
Terms
A term is any clause or provision in a contract. The two main issues which arise in relation to contractual terms are: what are the terms of the contract (identification) and what are their legal effects (construction).Apart from the terms expressly agreed, by reason of what the parties have written or said, implied terms may also exist, to impose obligations on either or both of the parties or to qualify the terms of their bargain. Although some statements made before the contract was entered into may be intended to operate as terms, not all such statements operate as terms.
Illegality
A contract may be illegal because it is prohibited by statuteStatute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
or because it infringes a rule of public policy
Public policy
Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. In general, the foundation is the pertinent national and...
.
Australian legislation affecting contracts
Most States have effected statutes relating to the sale of goods, such as the Sale of Goods Act 1896 (Qld), which imply conditions and warranties in relation to fitness and merchantibility. However, in many instances such implied terms can be displaced by the contrary intention appearing in the contract between the parties. This has meant that, in practice, in many sale of goods contracts these provisions are displaced.There are similar implied terms under the Australian Consumer Law relating to fitness and duty to take reasonable care in some classes of contract, and these particular terms are unable to be displaced by contrary intention: that is, the term will be implied into a contract of that kind irrespective of the parties' intention.
The Australian Consumer Law, together with Fair Trading legislation in all states, also allows a corporation or person to be sued where they have engaged in misleading or deceptive conduct regarding commercial or trade matters.
Australian case law
A number of decisions from Australian courts have also affected the circumstances where legal action can be taken regarding contracts.A number of Australian cases have introduced the concept of acting "unconscionably" as a reason for overturning the validity of a contract: Commonwealth v Verwayen, or where one party is at a "special disadvantage": Commercial Bank of Australia Ltd v Amadio
Commercial Bank of Australia Ltd v Amadio
Commercial Bank of Australia Limited v Amadio 151 CLR 447 , The Amadios, whose son carried on business as a builder, guaranteed the son's indebtedness to the Commercial Bank of Australia. To this end, they executed certain documents the effect of which was to provide the bank with a mortgage over...
.