The Definition of a Contract

Definitions of contract are of two broad types, each with its own problems.

- The first type of definition sees contract in terms of a promise or set of promises.

-  Pollock, in his Principles of Contract Law, defined a contract as ‘a promise or set of promises which the law will enforce’.

Problems:

(i) its implication that the only promises that can be enforced are those contained in the contract. This is clearly not the case.

(ii) an oral promise made in the context of a sale of land, can give rise to a valid contract, but the promise will be unenforceable due to the lack of writing evidencing the promise

- The second type of definition sees contract in terms of an agreement - a contract is an agreement giving rise to obligations which are enforced or recognized by law.

Problems:

(i) a contract can exist in the absence of actual agreement between the parties. This flows from the fact that the law takes an objective rather than subjective view of the facts when assessing whether an agreement exists.

Not all agreements giving rights to obligations are contracts. Unless the agreement is intended by the parties to be legally binding a contract does not exist.

The Significance of Contract Law

-  Contract law is undoubtedly one of the bases of the Australian law. To a large extent contract law underpins the way in which society operates.

- The significant of contract law can be measured by the frequency with which individuals are involved in relationships governed by the principles of contract law. Some of the most important examples include:

· contracts for the sale of goods and services
· contracts for the performance of work
· contracts for the deposit with, or borrowing from, banks and other financial institutions
· contracts for the purchase or leasing of land contracts of insurance.

Sources of Contract Law Principles

- The legal principles that constitute the general principles of contract law are primarily derived from the common law.

- As such the common law is a body of law developed by judges. Supplementing this body of law are the principles of equity that has its origins in the equity courts that began to emerge in England in the fifteenth century.

- Although the general principles of contract law are rooted in the common law and are supplemented by the principles of equity, statute law represents a third and vital source of these principles.

- Principles sourced in statute law have acted in much the same way as equity in that that they have supplemented the body of contract law principles found in the principles of the common law and equity.

- Although the general principles of contract law are sourced in the common law, equity and statute law of England, their further development in Australia is now firmly entrenched in the hands of Australian courts and parliaments.

- Although Australian courts and parliaments continue to accord significant respect to developments in England, they are increasingly prepared to consider developments in other jurisdictions such as Canada, New Zealand and the United States when considering the development of contract law in Australia.

- It must also be recognized that the process of internationalization of contract law affects contract law in Australia e.g. of the latter, one can refer to the United Nations Convention on Contracts for the International Sale of Goods, usually referred to as the Vienna Convention.

Classification of Contracts

A contract can be classified in a number of ways. Some of the more significant classifications are as follows.

Simple and Formal Contracts

The classification of a contract as either formal or informal reflects its form or means of creation.

A simple or informal contract - can be entered into orally and/or in writing.

A formal contract - is one in which the agreement between the parties is entered into in a particular form of writing known as a deed.

Bilateral and Unilateral Contracts

* A bilateral - contract is one in which both parties to it have obligations to perform at the time it comes into existence. It is constituted by an exchange of promises between the parties. E.g. A agrees to sell his car to B for $1,000, at the time of its formation it consists a promise by A to transfer title in the car to B, in return for B’s promise to pay A the sum of $1,000. At the time of formation, neither party has yet carried out their promises. At this stage, their promises are said to be executory.

In Union Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968], Lord Diplock observed that in a bilateral contract

‘each party undertakes to the other party to do or to refrain from doing something, and in the event of his failure to perform his undertaking, the law provides the other party wit h a remedy’. The great majority of contracts are bilateral contracts.

* A unilateral contract - is one in which only one party has obligations to perform at the time of its formation.

e.g. A promises that he or she will pay B if B performs some act, a contract arises when B performs the act. At the time of formation only A has to perform his or her promise as B has already performed, or executed, his or her obligation.

Mobil Oil v Lyndell Nominees (1998)

‘A unilateral contract is one which the act of acceptance of the offer is also executed consideration for the promise offered. The act of acceptance called by the offeree, leaves the contract executory only on the part of the offeror.’

Void, Voidable, Unenforceable and Illegal Contract

* Void contract is an agreement that is void is not a contract and the main effect of such a contract is that neither party is able to sue each other pursuant to it.

* A void contract will be ‘treated
as if it never had effect’: London Borough of Islington v Uckac [2006]

* Voidable contract is one whose validity is called into question because of a defect in the quality of the consent given by one of the parties upon entering into it.

* Unenforceable contract is one, which is in all respcts valid, but cannot be enforced by one or either  of its parties. The principal basis for unenforceability is the absence of writing evidencing the contract where such writing is required by statute. An example is contracts involving the sale of land.

An illegal contract is one that is prohibited either by statute or because it is contrary to public policy at common law. Generally, neither party to such a contract is entitled to enforce it or recover property that may have passed pursuant to its terms e.g. a contract for the murder of a person is illegal.

Requirement of Writing

- The central question dealt with in this topic is the extent, which, if at all, a contract has to be in written form.

- The common law position is that there is no requirement that a contract be in written form.

- Legislation overrules common law in the hierarchy. For example, most credit contracts are now required to be in written form. Also relating to the sale of land (most significant) or interests in land.

- The Statute of Frauds (UK) 1677 required that certain contracts must have a requirement of writing. This law has now been modified or repealed in all Australian Jurisdictions.

CONTRACTS RELATING TO LAND

Section 54A(1) of the Conveyancing Act 1919 (NSW) stipulates as follows:

54A Contracts for sale etc of land to be in writing

(1) No action or proceedings may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action or proceedings is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto lawfully authorised by the party to be charged.

• This is equivalent, although may be slightly varied in the statutes governing all other states.

• It is necessary to examine the essential elements of the requirement of writing as follows:

For the purposes of the statute, a note or memorandum must consist of:

(i) All the material terms of the agreement. This does not mean it must be set out as a formal contract, i.e. it may be a receipt of sale.

Case: Harvey v Edwards Dunlop & Co Ltd

(ii) An acknowledgement by the party to be charged that the agreement was intended to be contractual, i.e. signed.

Case: Tiverton Estates v Wearwell Ltd

Required Terms

-  Only the essential terms (required terms) of the contract need to be contained. If the document does not contain all of the essential terms, the court will not admit for Parol Evidence and the case will fail for uncertainty.

-  If some terms are missing, although they are not essential, the contract may still be enforceable, but subject to rectification.

The most common terms include:

(i) a suffiient description of the parties
Case: Williams v Byrnes

(ii) a sufficient description of the subject matter
Case: Pirie v Saunders

(iii) the consideration for the promise
Case: Burgess v Cox

(iv) a statement of any special conditions
Acknowledgement of the Contract
Case: Tiverton Estattes v Wearawell Ltd:

* The previous decision was overruled as court found that statute would be ineffective to guard against fraud if it did not require the note or memorandum to recognize the existence of the alleged agreement and the fact that both parties had agreed

Signature

* The requirement is signature by the party to be charged under the contract or by that persons agent, ‘lawfully’ authorized.

* In Thomson v McInnes Griffith CJ said that the statue contemplated ‘three different modes of signature, first, by a person with his own hand, secondly, by an amanuensis signing the name of another person in that other persons presence by his discretion, and, thirdly by an agent

* Where the name of the party to be charged appears on the alleged note or memorandum, e.g. because it was typed in by the other party, the so-called ‘authenticated signature fiction’ may apply.

* But, this principle has no application to a document ‘which is not in some way or other recognizable as a note or memorandum of a concluded agreement’. Neill v Hewens

Enforcement of Oral Contracts Involving Land

An oral agreement for the sale of land or interest in land cannot be enforced. All contracts to do with the sale of land must be placed in a formal written contract. McCormick v Grogan

Capacity

 - This topic is concerned with limitations on the ability or capacity of certain classes of persons to enter into a contract. These classes include minors, persons lacking mental capacity and bankrupts. This course’s focus is on the contractual capacity of minors.

Capacity of Minors

- There is a presumption at common law that a person who enters into a contract has full capacity to do so.

- In certain limited cases a person who is under some disability will be exempted fully or partially from the normal rule.

- The common law rule no longer applies in NSW due to the Minors (Property and Contracts) Act 1970 (the Act). The age of majority is now 18 years in all Australian States.

-  Under the Act a ‘presumptively binding civil act’ are civil act which is binding upon a minor such as:

o A minor acquiring property of a permanent nature NW Ry Co v M’Michael

o Contracts for marriage settlements Edwards v Carter

-  If a minor is ‘lacking by reason of youth, the understanding necessary for participation’ (s18 the Act), then the contract will not be presumptively binding.

-  The classes of contract which are presumptively binding according to s19-20, 23 of the act are:

o S19 – any civil act that is, at the time of participation, for the minors benefit.

o S20 – any executed or partially executed purchase or sale of real or personal property by a minor is presumptively binding so long as the contract was a fair exchange.

o S23 – investments in government securities.

-  The mere fact that a contract may be said to be for the benefit of a minor does not render the contract binding on a minor.

-  The term ‘benefit’ simply means any contract entered into that favours the minor and is beneficial to the minor.