An Overview Of The Course

NB REFERENCES TO "HPH" OR JUST TO A PAGE NUMBER ARE TO HEFFEY, PATERSON AND HOCKER CONTRACT COMMENTARY AND MATERIALS 8TH ED 1998 (LBC INFORMATION SERVICES)

We have already seen that the law of contract is about promises. It is about two parties coming together and making a deal of one kind or another. That deal contains the promises agreed to by the parties - called the terms of the contract.

The Rules About Formation

Because of the importance of contract promises as compared with other promises, namely, legal enforceability, the law of contract must determine when or if a contract has been made. Hence quite some attention is paid to the elements of formation of contract. So, there are some quite detailed rules which answer the questions: has a contract been made or are the parties still negotiating? When was a contract made? Sometimes it is even necessary to answer the question: where was the contract made? The rules of formation include the rules about offer, acceptance and consideration. But we also look at other rules which are of relatively recent invention which may also answer the types of questions I have just outlined. In particular there is the new doctrine of estoppel which we will examine.

In some circumstances it may be possible to argue that, although the parties appear to have reached an agreement, there is good reason not to treat that agreement as legally enforceable. An example might be an agreement between the members of a family. In such cases it is said that there was no intention to create legal relations.

Formalities

Do contracts have to be in writing? The answer to this, as we have already seen, is, contrary to popular belief, No - most contracts do not have to be in writing. But then, the law does require writing in a limited class of contracts, the most important of which are contracts for the sale or lease of land. This requirement comes from an old English Act called the Statute of Frauds which has been adopted in each jurisdiction in Australia. Many consumer contracts must also be in writing. But generally there is very little legal requirement for formalities. This does not mean that writing cannot be used. As a matter of common sense and good business practice it is essential to record the agreement in writing so that there is less room for argument about what the parties agreed to. Due to lack of time, we will not be studying this topic in the contract course this semester.

Terms

This then leads us to the question: what did the parties agree to? We have already seen that in ordinary day-to-day transactions one may have to find hidden terms - called implied terms. In what circumstances will a court imply terms into a contract? Express terms may be badly expressed and may be even meaningless. How does the law cope with this kind of problem? There are rules about what the parties are permitted to use as proof of what they have agreed to. For example, if after signing a written contract, one of the parties sometime later says that a very important term has been left out and that evidence of that term can be found in a crucial letter that was sent before signing. That kind of problem has to be dealt with. Some special kinds of terms are given special treatment by the courts, particularly exemption (or exclusion) clauses.

Another common problem arises when the parties have agreed to a set of terms and then have not stuck to them - either because one of the parties has been allowed to perform in a different manner of because both of the parties agree to vary performance or renegotiate the terms.

Faulty Negotiations

I have already mentioned that we deal with the consequences of what might be broadly described as faulty negotiations. If a person who has entered into a contract can make use of a number of special doctrines then he or she may be able to cancel (rescind) the contract. Under this heading comes the law of misrepresentation, mistake, duress, undue influence and unconscionable dealing. All of these have as their basic justification that a person should not be held to a contract if he or she was the victim of unfair treatment during negotiations. The law in Australia has moved very markedly towards a general principle that anyone who has behaved unfairly or unconscionably should not have the benefit of a contract.

Breach And Its Consequences

Of course the law of contract has a great deal to say about breach - one of the parties has not performed as promised. We have already mentioned that the hallmark of contractual promises is that they are legally enforceable. What does this mean precisely? The principal remedy is damages and there is a lot of law about what you can claim, what types of loss are covered and how much you eventually end up with. The other remedy - specific performance - is used only in special types of contract the most important of which are contracts involving interests in land.

In addition to these remedies, there is a self-help remedy - termination of the contract. Again there is a lot of law about this most drastic of remedies.

Other Areas Of Contract Law

What has been discussed so far constitutes the core areas of the law of contract. There are other areas of the law of contract which give rise to disputes from time to time but much less commonly than the core areas. In this course we really only have time to cover the core areas, so we will not be covering the topics listed below; however, to complete the picture of what the law of contract covers:

Illegality It may be possible to argue that a contract is void or unenforceable if it could be said to be illegal. For example, the courts would not lend their aid to the enforcement of a contract on someone's life. The problem of illegality does get a bit more difficult than this. Because there is so much statutory regulation of all sorts of activities, it is at least arguable that a contract which necessarily involves a breach of a statute cannot be enforced because it is illegal. The courts have had to strike a reasonable balance so that some incidental infringement of a statutory provision does not necessarily affect the validity of a contract. Another area where the courts have had to change relates to contracts involving immorality. It used to be the case, for instance, that contracts in which prostitutes bought things or rented flats could not be enforced (which meant ironically that sometimes the prostitute got whatever it was for free). Nowadays the courts are a bit more liberal about that sort of contract and will generally enforce them like any other contract. Capacity Very rarely, a court is asked to say whether a person has the capacity to enter into a contract. The law here is in a most unsatisfactory state with different and complex laws in the different states and territories. Minors (people under 18) fall into this area of the law of contract as do people who are mentally troubled or who were under the influence of drugs or alcohol when they entered into a contract. We will not be studying this area. There are very few modern cases which raise questions of capacity to contract. Assignment A rather specialist area of the law of contract deals with assignment of either contractual rights or contractual obligations. This sort of thing arises if a company takes over another company which has existing contracts. It can also arise when a party is simply replaced by a new party to perform the contract. We do not have time to look at this area which has its own special complications. Frustration Sometimes some disastrous event makes performance of a contract either impossible or extremely difficult. In rare cases, a court may be prepared to declare that the contract is frustrated. The effect of this is to relieve both parties from further performance. Essentially it means that a party who has not performed is not in breach but is excused.