Contracts are legally enforceable agreements between 2+ parties, providing for mutual obligations of each party.
Contracts are based on the principle “pacta sunt servanda”, Latin for “pacts must be kept”.
At common law, the remedy for breach of contract is “damages” (monetary compensation), but in equity, has been extended to include “specific performance” (required to fulfill the contract) or injunction (requiring a third party to do, or not to do something).
Elements in forming a contract
The classical elements that are required in contract law is offer/acceptance and consideration.
Offer and acceptance is where there is “consensus ad idem”, Latin for “meeting of the minds” of 2+ parties.
Offer and acceptance can be either express, in which case it is either in writing or oral (spoken); or implied. The only exception is real estate, which is generally required in writing.
Contracts which are implied in fact means there are circumstances that imply an agreement is made even if it wasn’t done so expressly.
“For example, if you see a doctor, you’re implying to pay a fair price for the service,” Mandy outlined.
Contracts which are implied in law (called quasi-contracts) means the court have remedied a situation by awarding a contract, because there would be unjustified enrichment otherwise.
When a product is offered in large quantities, it is not considered an offer, but rather, an invitation to treat.
“For example, if there is a beverage advertised on television,” Mandy begun.
“For example, a Vodka Cruiser : That is an invitation to treat, not an offer,” Jamie noted, “If you go into a shop and ask to buy it, that is your offer, and the shop doesn’t need to give it to you because you’re not old enough, this is fine, because it isn’t your acceptance of the contract per se.”
“You are suuch a girl Jamie LOL!” Mandy quipped, “buying girly drinks and all… “
Consideration is the giving of something of value by the promissor to the promisee in exchange for something of value given by the promisee to the promissor.
“For example, if I agree to hug you if you give me a purity ring,” Mandy begun.
“Te purity ring I give you in exchange for the hug, is the consideration,” Jamie replied.
Consideration must be sufficient, although courts will not weigh the adequacy of the consideration.
“For example, if I agreed to sell you my lamborghini in exchange for fifty cents,” Mandy begun.
“The court would consider is as sufficient, because all that needs to be shown is you (the seller) actually wanted the fifty cents,” Jamie replied, “not that the lamborghini was actually worth fifty cents.”
Terms of a contract
Terms of a contract that are classified a condition or warranty, mean they are at the very core of the contract, and breach will give rise to damages.
Terms in a contract can be implied in fact, for example common trade practice.
Terms in a contract can be implied in law, for example by the Sale of Goods Act, which provides consumer protection.
Breach of contract
Where there is breach of contract, the contract can either be deemed void, voidable, unenforceable, ineffective, or rescinded.
Void means it is like as if the contract never came into existence.
Voidable means that one or both parties may declare a contract ineffective if they wish, but only if they wish.
Unenforceable means neither party can apply to court for a remedy even if they break it.
Ineffective means the contract has been declared terminated by court.
Rescinded means the contract is unwinded, to bring parties, as far as possible, back to positions they were in before they entered the contract.
Defenses to breach of contract
Although contract is relatively easy to form, it may be breached if there are justified reasons, called defenses.
Mistake is a defense that says an erronous belief was made at the time of contracting.
Unilateral mistakes are those made by one party, which are generally not considered as defense by courts, unless if the mistake should have been apparent to a reasonable person, and both parties knew what the correct fact should be. Such common example is an agreement to buy a house for $50,000 when in fact it was supposed to be $500,000. It is a unilateral mistake because the person who put down $50,000 got it wrong; the other party obviously isn’t going to mind to pay less!
Incapacity is where one of the parties isn’t able to contract due to mental incompetence or young age.
The definition of a minor is generally defined within each geographical region, usually 18 or 21, although there is usually an exception for items that are necessary for these ages, such as that relating to school.
Where a party is mentally ill, usually defined by a Mental Capacity Act, the person will be considered mentally incompetent to contract.
Where a party is drunk or under drugs, they are considered incapacitated too.
Duress, which is where there is unlawful coercion, either physical duress (violence, threat) or economic duress, which has led to the entering into a contract.
Undue influence, which is where one person is taking advantage of a position of power over another person.
Presumed undue influence is where it falls within a predefined category of:
- Priest/members of parish
The onus of proof lies on the person with power to disprove undue influence.
Actual undue influence are cases other than “presumed undue influence”, where based on the facts, there can be shown an imbalance of power during the signing of contract.
Unconscionability is where the terms are excessively unfair to one party, for example where the consideration is obviously inadequate to enforce the contract.
Misrepresentation/fraud is where a false statement of fact has been made by a party to another party, inducing the other party into the contract.
Frustration of purpose is where an unforeseen event has occurred, such that the principal purpose of the contract can no longer be fulfilled as a result.
“For example, if I have a concert booked out at Staples Center, but the stadium is burnt to the ground,” Mandy begins.
“There’s a frustration of purpose because there’s been an unforeseen event, which has caused the purpose of the contract, the hiring of the stadium for your concert, to become unable to be filled.”
“In that case, the stadium neither has to give me use of the stadium at the given time, nor do I need to pay for the center?” Mandy asked.
“Yep, that’s right,” Jamie replied.