The Law of Contract

A contract is a legally binding agreement between two or more parties (but usually two). The law will consider a contract to be valid if the agreement contains all of the following elements:

• an intention between the parties to create legal relations;
• the parties must be parties to the contract and must be recognised legal entities;
• agreement;
• consideration;
• the parties had legal capacity.

An agreement that lacks one or more of the elements listed above is not a valid contract.

A contract may be set aside or else be unenforceable or possibly void if

• negotiations for the contract were defective in some way, for example, one party was vulnerable and taken advantage of or was misled;
• it is uncertain in meaning; or
• the agreement was affected by illegality.

Once a valid contract is in place then the parties are bound by the various obligations in the contract. If a party fails to fulfil an obligation, that party is then in breach of contract. The other party may then seek court-ordered remedies (though, of course, in the vast majority of contracts it is not necessary to go to court to enforce rights under the contract).

The remedies for breach of contract are

• damages (the usual remedy);
• specific performance (a discretionary remedy where a court may order a party to perform the contract);
• injunction (a discretionary remedy where a court may order a party to stop breaching a negative obligation, for example a promise not to disclose confidential information; or may order a party to carry out a particular positive obligation, for example, to provide access to premises);
• in some cases of breach, termination, that is, the non-defaulting party may bring the contract to a close (see <Termination for Breach of Contract>).

Rights Outside the Law of Contract

It is important to understand that consumer or commercial dealings between people may attract other legal consequences than those that stem from a contract. If for some reason a contract remedy is not available or is practically unhelpful, it may still be possible to find legal rights through other areas of the law. The most important areas are

• remedies under the Australian Consumer Law (which replaced the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1992 (ACT) on 1 January 2011), particularly for misleading or unconscionable conduct; and
• the law of estoppel.

The remedies under the Australian Consumer Law are discussed at various points in this chapter. The Australian Consumer Law is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth)). The Australian Consumer Law has been adopted as a law of each State and Territory in place of provisions formerly in each jurisdiction’s Fair Trading Act. With effect from 1 January 2011, there is now one single piece of legislation instead of nine different Acts.

Estoppel

Estoppel is not further discussed but should be kept in mind in any circumstance where someone has "blown hot and cold". The law considers that a person should have a legal remedy if the following has happened:

• A has made a representation to B or has encouraged B to adopt an assumption;
• B acted in some material way on the representation or assumption, that is, B relied on the representation or assumption;
• A then wished to act in a manner that was inconsistent with the representation or assumption and this would adversely affect B because of B's reliance.

In these circumstances A may be estopped (prevented) from acting inconsistently or else must take the consequences of doing so. It must be unconscionable for A to act inconsistently and this is usually the case if B has relied on the representation or assumption in some material way.

The remedy for estoppel is open-ended. A court must fashion the remedy so far as possible to undo the detriment suffered by B. This may be an order to A to act consistently with the representation or assumption; or it may be an order to pay compensation.

Estoppel is a complex area of the law. There are various types of estoppel. See generally Seddon, Bigwood and Ellinghaus, chapter 2 and paras 16.67-16.71.

Must Contracts be in Writing?

Under common law principles contracts do not have to be in writing. Legislation provides that some contracts must be in writing or be evidenced by a written document. These include contracts involving interests in land (for example, sale, lease or mortgage) and all contracts regulated by consumer protection legislation.

If a contract is required by legislation to be in writing and it is not, or not sufficiently, then the contract may be void, voidable or unenforceable, depending on what the legislation provides. The contract may be unenforceable by one party (the supplier) but enforceable by the other (the purchaser), particularly under consumer protection legislation.

Under the law of restitution, it may be possible to recover a reasonable remuneration for goods delivered or services rendered even though the contract is legally defective for want of writing. This again depends on the drafting of the relevant legislation that specified a written contract. See generally Seddon, Bigwood and Ellinghaus, paras 16.53-16.55.

However, even if writing is not a legal requirement, it is always advisable to have the terms agreed between the parties written down and attached to, or kept with, any other relevant papers; for example, copies of quotations, brochures, pamphlets, that were supplied at the time the contract was entered into. Receipts for money paid should always be kept. If a dispute arises, these documents may assist in resolving differences between the parties. For example, a private purchase and sale of a car does not have to be in writing but it is a good idea to record the essential terms of the transaction.

A written contract can be drawn up by listing all the terms agreed between the parties and getting each of the parties to sign and date the document at the end.