Contract Law
The contract is referred to a legally binding relationship which is formed between two or more parties. It is defined as a set of promises which are legally enforceable on parties. If the parties failed to comply with these terms, then they have to face legal consequences. In Australia, the contracts are governed by the provisions of the common law.
A contract can be in oral or written format. Verbal contracts are referred to those contracts which are agreed by parties based on spoken communication. In contrast, written contracts are legal agreements which are constructed between parties in writing (Chen-Wishart, 2012). In written contracts, the parties give their agreement regarding the terms of the contract by signing it. Parties find it difficult to prove the terms of the verbal contract if there are no witnesses; therefore, people prefer to form written contracts especially in the business agreements. However, both verbal and written contracts are legally enforceable by the law as long as all the essential elements of the contract are present.
In order to form a valid contract, the parties are required to comply with the essential terms of the contract. Following are the essential standards of the contract which must be present in order to form a valid contract by the parties.
In order to form a valid contract, an offer must be given by a party to another. It is considered as a seed for a contract without which the contract cannot be constituted (Cartwright, 2016). The party who makes the offer is called an offeror. A landmark judgement was given in Harvey v Facey [1893] UKPC 1 case. It was given in this case that while making the offer, the offeror must have the intention that he/she wanted to bind by its terms (Hough & Kuhnel-Fitchen, 2017). It means that after receiving the acceptance of the offeree, to whom the offer is made, an agreement is formed between parties.
Once the acceptance is given, a binding legal contract is constructed between the parties. It is referred to the approval of the party on the terms given in the offer. To constitute a valid acceptance, certain elements must be present. It must exactly match the terms given in the offer, and it must be certain. A general rule of acceptance was established by the court in Entores v Miles Far East [1955] 2 QB 327 case. It was given that the offeror must receive the acceptance of the party before it is effective and it must be communicated with a reasonable time (Monaghan & Monaghan, 2013).
Verbal and written contract
The parties, who wanted to form a valid contract, must have the intention to form a legal relationship with each other. The parties of the contract must have the intention to bind themselves by the terms of the contract. In Jones v Padavatton [1969] 1 WLR 328 case, it was held that agreements which are formed between parties in social or domestic settings did not form a legally binding relationship between them because the parties did not want to enforce the legal terms on each other or bind themselves into such terms (Turner, 2013).
Without a valid consideration, the parties cannot enter into a contractual relationship. It is defined as the bargain for the contract in which parties exchange their promises. A party suffers a detriment whereas other receive a profit. Not everything is considered as valid consideration for the contract as it must have certain value in the eyes of the law as given in Thomas v Thomas (1842) 2 QB 851 case (Turner, 2013).
- Competence
The parties who are forming contract must have the capacity to bind themselves into legal terms. Not everyone is competent to create a valid contract. Minors, unsound mind or insolvent parties are generally not allowed to form a contract.
The terms of a contract are categorised into two types which include express and implied terms. The expressed terms are included by the contractual parties into the contract which are clearly expressed. The implied terms are included by the court or the statute. These terms are included based on facts, customs or the law. Further, these terms are divided into conditions and warranties. The conditions are crucial terms in a contract based on which the entire contract is formed (Poole, 2016). Warranties are non-essential terms which are not as significant as conditions. The contract can be rescinded on violation of conditions and parties can demand damages, however, the right of claim damages is only available is warranties are breached.
The standard form contracts are referred to such agreements which are pre-prepared in which most terms are included in advance. In these contracts, there is little, or no negotiation occurred between parties regarding its terms. These contracts are often printed in which blanks are leave for parties to write their names, dates, addresses, and signatures (Business, 2018).
Unfair terms are also called exclusion clause. It is referred to those terms which are included by the parties into the contract to exclude their liabilities which arise in case the terms of the contracts are violated. Parties have to comply with the general rule while incorporating these terms into the contract as given in the case of Olley v Marlborough Court [1949] 1 KB 532. The rule provides that the exclusion clause must bring into the attention of the parties (Russell, 2012). However, there is an exception available to this rule which was given in L’Estrange v Graucob [1934] 2 KB 394 case. It was held that this rule did not apply if the contract is in written format.
The essential elements of a valid contract
There are various circumstances in which the contract can bring to an end by the parties. Firstly, it can be discharged based on performance. If the parties comply with the contract terms, and they discharge their obligations, then the contract comes to an end. It can also be ended by the repudiatory breach which means that the innocent party can rescind the contract if its condition is violated. The contract can also be discharged by agreement between parties in which they mutually decided to rescind it (McKendrick, 2014). The contract can be discharged by frustration if certain circumstances arise, without fault of either party, due to which performance of the contract becomes impossible.
A suit for negligence can be instituted against a person in case a party suffered a loss due to failure of the person to ensure that a standard of care is maintained. In Australia, provisions are given under the common law which governs the cases involving negligence of a party (Barker, Cane, Lunney & Trindade, 2012). Following are different elements which are evaluated by the court in order to determine whether a valid suit for negligence can be constituted or not.
A duty of care is the first element which is evaluated by the court in a suit for negligence. It is referred to a legal obligation of a party who is liable to do or not doing something to ensure that other parties did not suffer a loss or injury. In Donoghue v Stevenson (1932) AC 532 case, key elements of negligence were established by the court. It was held that without a duty of care, a person could not be held liable for negligence (Stephenson, 2012). In this case, a customer suffered a serious injury due to the negligence of the café owner because the remains of a dead snail were present in a ginger beer. A suit was filed, and the court accepted the claim. The court provided neighbour test which is used to determine whether a duty exists or not. This test evaluates two key factors. Firstly, whether the damages suffered by the party were foreseeable.
The second factor is that whether the parties were in a proximity relationship. In case both of these elements are present, then a duty is imposed on the party. In Caparo Industries PLC v Dickman [1990] 2 AC 605 case, the court provided the test which is used while determining a duty in case of economic loss. Generally, the parties who suffered an economic loss did not have the right to make a claim to recover their damages. However, the court provided the ‘Caparo test’ which is used by the parties in order to impose a duty in case of economic loss (Marsh, 2017). The test evaluates three key elements. The first element is whether the risks are foreseeable for parties. The second element is whether closeness exists between the relationships of the parties. The third element is whether it is fair and reasonable to impose the duty on the party.
Offer
After establishing a person’s duty, the next step is proving that such duty is violated by the party. The duty is breached by a party in case such party has failed to maintain a standard of care. While determining this element, the court uses an objective test (Fulbrook, 2017). This test was established by the court in the case of Vaughan v Menlove (1837) 3 Bing N.C. 467. The claimant suffered a loss due to the negligence of the defendant. The haystack of the claimant was burned in the fire. There were many warnings given to the defendant to take reasonable care, however, he failed to do so. It was argued by the defendant in the court that as per his best judgement, the risks were not foreseeable. The court rejected these claims and provided that the best judgement of a party is not enough. The standard should be maintained by him that a reasonable person would maintain in the particular situation (Keating, 2016). While determining whether the duty is violations, the court evaluates likelihood and seriousness of harm. The court also evaluates the cost of prevention and utility in the conduct of the defendant.
It is another key element which is necessary to be present in the case of negligence. This element provides that the damages suffered by a party must be a direct result of the breach of duty by another party. While determining this element, the court uses ‘but for’ test. This test was used by the court in the case of Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428. As per this test, the court evaluates that the claimant had not suffered the injury, but for the actions taken by the defendant, the damages occurred (Carr, 2013). The court evaluates that the injury of the innocent party must be caused due to the failure of the defendant to maintain a standard of care.
This is the final element of a suit for negligence. As per this element, the injury suffered by a party which is a result of the negligence of another must not be too remote. The damages which are too remote are not recoverable under a suit for negligence (Samuel, 2016). This element was further explained in the landmark case of the Wagon Mound no 1 [1961] AC 388. In this case, damage was caused to a wharf. The damages were occurred because of the negligence of some crew members who failed to close the oil tap. Due to this negligence, the oil was leaked into Sydney Harbour. In a nearby wharf, employees were welding, and they did not consider that the oil can be flammable. The wharf caught fire due to which the owner suffered substantial loss. A suit of negligence was instituted to recover the damages suffered by the party. However, the court rejected the claim based on the element of the remoteness of damages. It was held by the court that the damages suffered by the party were not foreseeable and the injury was too remote based on which the compensation cannot be claimed by the party under a suit for negligence (Hodgson, 2016). In case all these elements are present in a case, then a suit for negligence is considered as valid based on which the parties can recover damages for the loss which they suffered due to the negligence of another party.
References
Barker, K., Cane, P., Lunney, M., & Trindade, F. (2012). The law of torts in Australia. Oxford: Oxford University Press.
Business. (2018). Types of contracts. Retrieved from https://www.business.gov.au/people/contractors/understanding-contracts/types-of-contracts
Carr, C. (2013). Course Notes: Medical Law and Ethics. Abingdon: Routledge.
Cartwright, J. (2016). Contract law: An introduction to the English law of contract for the civil lawyer. London: Bloomsbury Publishing.
Chen-Wishart, M. (2012). Contract law. Oxford: Oxford University Press.
Fulbrook, J. (2017). Outdoor activities, negligence and the law. Abingdon: Routledge.
Hodgson, D. (2016). The law of intervening causation. Abingdon: Routledge.
Hough, T., & Kuhnel-Fitchen, K. (2017). Optimize Contract Law. Abingdon: Routledge.
Keating, G. (2016). Are Corporations Responsible Agents. Jotwell: J. Things We Like, 344.
Marsh, P. (2017). Contracting for engineering and construction projects. Abingdon: Routledge.
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford: Oxford University Press.
Monaghan, C., & Monaghan, N. (2013). Beginning Contract Law. Abingdon: Routledge.
Poole, J. (2016). Textbook on contract law. Oxford: Oxford University Press.
Russell, C. A. (2012). Opinion Writing In Contract Law. Abingdon: Routledge.
Samuel, G. (2016). Epistemology and method in law. Abingdon: Routledge.
Stephenson, G. (2012). Sourcebook on Tort Law 2/e. Abingdon: Routledge.
Turner, C. (2013). Contract law. Abingdon: Routledge.
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