CONTRACT LAW
Essential Criteria for a Contract
1.	Offer
2.	Acceptance
3.	Intention to be legally bound
4.	Consideration
5.	Capacity of parties
6.	Reality of consent
7.	Legal purpose
There is no criteria that a contract must be in writing.
Offer
•	Must be a firm promise (Harvey v Facey)
•	Must be communicated (R v Clarke)
•	May be withdrawn prior to acceptance (Routledge v Grant)
•	May be made to one person, a group or the entire world (Carlill v Carbolic Smoke Ball Co)
•	May be terminated by a counter-offer (Tinn v Hoffman & Co)
•	Is different from an invitation to treat (Pharmaceutical Society v Boots)
Acceptance
•	Must be absolute and unconditional (Masters v Cameron)
•	Must be communicated (Felthouse v Bindley)
•	Must be made in reliance of the offer (R v Clarke)
•	Must be made in accordance with the terms of the offer (Gilbert J McCaul Pty Ltd v Pitt Club Ltd)
•	May be forwarded by post and, if so, is effective as soon as it is posted (Adams v Lindsell)
Intention to be legally bound
•	Presumption that parties to a social agreement do not intend to be legally bound (Balfour v Balfour)
•	Presumption that parties to a commercial agreement intend to be legally bound (Rose & Frank Co v JR Crompton & Bros)
•	Presumptions can be rebutted by evidence to the contrary 
Consideration
•	Usually money but can be anything of value
•	Consideration must have legal value but need not be of adequate value (Chappell & Co Ltd v Nestle Co Ltd)
•	Consideration must move from the promise (Dunlop Pneumatic Tyre Co Ltd v Selfridge and Co Ltd)
•	Consideration must not be past (Roscorla v Thomas)
•	Consideration must be sufficient (Stylk v Myrick, Foakes v Beer)
Promissory Estoppel
•	Can be used to overcome lack of consideration
•	Six requirements for promissory estoppel to apply:
o	Promisee assumed a legal relationship with promisor
o	Promisor was responsible for the assumption
o	Promisee relied on the assumption
o	Promisor intended for promisee to rely on the assumption
o	Promisee suffers detriment because of reliance
o	Promisor has failed to warn promisee
Capacity
•	You cannot be bound by a contract if you lack the capacity to agree
•	Minors, intoxicated people and the mentally unsound lack capacity to enter contracts
•	Minors sometimes need to be able to enter contracts such as a contract of employment, so the law does provide some exceptions
Contracts binding on minors
•	Minors will be bound by contracts for necessaries under the common law (Nash v Inman)
•	Minors will be bound by beneficial contracts of service (De Francesco v Barnum)
•	Legislation in NSW binds minors to contracts if they understand what they are doing and the contract is for their benefit (Minors (Property and Contracts) Act 1970 (NSW) sections 17-19)
Capacity of corporations
•	A company is a legal person in the same way as somebody walking down the street
•	A company has the same legal capacity as a biological person (s.124 Corporations Act 2001)
Reality of Consent
A contract can be void (i.e. not exist) if there is:
1.	Duress
2.	Unconscionable Conduct
3.	Undue Influence
4.	Misrepresentation
Duress
•	It must be something more than normal commercial pressure (Barton v Armstrong; Electricity Generation Corporation v Woodside Energy Ltd)
Undue Influence
•	If someone relies on another person such that they are not exercising a free and informed consent (Allcard v Skinner)
•	Undue influence involves one person taking advantage of a position of power over another person
•	The courts presume that some relationships automatically give rise to undue influence (e.g. lawyer & client)
•	In other cases, the innocent party must prove they bestowed trust and confidence in the wrongdoer
Unconscionable Conduct
•	You cannot take advantage of someone in a position of ‘special disadvantage’ People with a special disadvantage include the elderly and people with poor understanding of the English language
•	Contracts entered under these circumstances are unenforceable (Commercial Bank of Australia v Amadio) 

Misrepresentation
•	A false statement made to induce somebody to enter a contract
•	The statement must be untrue or seriously misleading. A statement which is "technically true" but which gives a misleading impression is an "untrue statement"
•	Misrepresentation can be:
o	Fraudulent – statement is intentionally deceptive (Derry v Peek)
o	Innocent – statement is not intentionally deceptive
o	Negligent – statement is made recklessly (Hedley Byrne & Co Ltd v Heller and Partners Ltd)
Legality of Object
Contracts will be void if the object of the contract is illegal or contrary to public policy (Pham v Doan)
Express vs Implied Terms
•	Contracts often contain multiple promises between the parties that we call terms
•	Express terms are explicitly written or spoken as being part of the contract by the parties
•	Implied terms are not explicitly written or spoken but are put into the contract by legislation, implied from the conduct of the parties or are implied by the courts to make the contract effective
The Parol Evidence Rule
•	The courts presume that a written contract which appears complete on its face contains the whole agreement and will not permit a party to add to, vary or contradict the written agreement
•	This presumption can be rebutted if evidence clearly indicates the contract is not complete
Implied Terms
Australian Consumer Law and the common law imply terms into contracts that:
•	Goods are of ‘merchantable’ quality, that is, they work
•	Goods and\or services are fit for the purpose for which they are intended
Post Contractual Statements
•	As a general rule, contracts you sign are binding even if you did not read the contract (L’Estrange v Graucob)
•	You cannot be bound by statements, promises or representations made after the contract has been formed (Olley v Marlborough Court)
Exemption Clauses
•	Terms that limit or exclude the liability of one of the parties
•	Interpreted narrowly
•	The courts presume that parties do not intend to exclude liability for a fundamental breach of the contract
Conditions vs Warranties
•	A condition is an important term of the contract
•	A breach of condition gives the innocent party the right to terminate the contract and sue for damages
•	A warranty is a less important term of the contract
•	A breach of warranty give the innocent party the right to sue for damages, but not terminate the contract (Bettini v Gye)
How do contracts end?
1.	Performance
2.	Agreement
3.	Frustration
4.	Operation of law
5.	Lapse of time
6.	Breach of contract
Performance
•	A contract usually comes to an end when each party has performed all the obligations imposed by the contract
•	Obligations under the contract must be performed exactly, usually near enough is not good enough (In re Moore & Co Ltd and Landauer & Co)
Agreement
•	Parties to a contract can agree to terminate the contract
•	One party may waive performance of the contract by not insisting on strict compliance
Frustration
•	Frustration occurs when a supervening event beyond the control of the parties makes the contract incapable of performance (Taylor v Caldwell)
•	A contract will not be frustrated because a party regrets their commitment, or faces hardship, inconvenience, or material loss (Davis Contractors Ltd v Fareham Urban District Council)
Operation of law
Certain rules of law bring about the termination of a contract such as:
•	Bankruptcy
•	Death (but only where an offer is yet to be accepted)
•	Material alteration (where one party alters the written contract)
•	Merger (where the contract is replaced by a later contract)
Lapse of time
•	An offer not accepted in a reasonable time lapses
•	State legislation provides that a right to sue for breach of contract must be enforced within a fixed period or else it becomes statute barred
Breach of contract
•	If one party breaches the contract, the other party can “walk away” from the contract and treat their obligations under the contract as finished
•	A breach may be an actual breach or an anticipatory breach (Foran v Wight)
Remedies
•	Rescission
•	Restitution
•	Damages
•	Specific performance
•	Injunction
Rescission
•	Setting aside of the contract and restoring the parties to the positions they were in before the transaction took place
•	Rescission may be granted because of misrepresentation, undue influence, duress, or unconscionability
Restitution
Available where someone has benefited at the expense of someone else and it would be unjust to allow that person to keep the benefit (Pavey & Matthews Pty Ltd v Paul)
Specific Performance
•	A court order requiring a person to fulfil their agreement under a contract
•	Specific performance is most commonly used where the vendor of land refuses subsequently to transfer title to the purchaser
•	Specific performance is not used to enforce contracts for personal service
•	Not available where damages are an adequate remedy
Injunction
•	A court order to stop a person breaching their contract 
•	A contract for personal service is not normally subject to specific performance but may be enforced by injunction (Lumley v Wagner)
•	Not available where damages are an adequate remedy
Damages
•	Damages is the award of money or something else as compensation for loss or injury
•	The purpose of damages is to put the plaintiff in the position they would have been in had the contract been performed properly
•	Punishment
o	Contract law does not permit the imposition of a penalty or punishment
o	Punishment is the imposition of a penalty as retribution for an offence
o	Punishment has five recognised purposes: deterrence, incapacitation, rehabilitation, retribution, and restitution
o	Punishment is administered by the government against criminals who have committed a criminal offence against the state
•	Punitive Damages
o	Punitive damages are monetary compensation awarded to punish the defendant for their actions
o	The objective of contract law is to compensate plaintiffs, not punish defendants
o	Punitive damages are not awarded by the courts in disputes involving breach of contract 
•	Liquidated Damages
o	Contracting parties can insert a clause into the contract that specifies the amount of damages recoverable by one party if the other breaches the contract
o	This is called a liquidated damages clause
o	The amount specified must be a genuine estimate of loss or it will be regarded as a penalty clause and the court will not enforce it
•	Causation & Remoteness
o	A plaintiff seeking compensation for breach of contract must prove that the breach caused their losses
o	The losses must also be so closely related to the breach that they cannot be said to be too remote (Hadley v Baxendale)
•	Losses Recoverable
There are two kinds of loss that a plaintiff may recover:
o	Loss arising from the breach of contract in the usual or normal course of things; and
o	Loss arising from special or exceptional circumstances where the defendant had actual knowledge of the plaintiffs special needs (Hadley v Baxendale)
Privity of Contract
•	Only a party to the contract has any rights under the contract
•	The contract imposes obligations only on the parties to the contract:
Beswick v Beswick