OVERVIEW OF CONTRACT LAW

Transcription

1 OVERVIEW OF CONTRACT LAW Liability is generally the key issue in regards to contractual disputes. Purpose of K law is to provide the rules which determine when one party is liable to another under or in connection with a K. In contractual disputes, non-contractual liability must also be considered, these are: -misleading conduct -liability in tort -restitution -debt -property rights -equitable rights -estoppel What is a K? An agreement containing promises made between two or more parties with an intention of creating certain legal rights and obligations that are enforceable in law. Elements of liability for breach of contract For a claim of breach of K to succeed, the claimant/plaintiff must: prove the existence of a K w/ the party in question prove that a breach occurred in accordance w/ the terms of the K & the rules defining breach establish an entitlement to remedies establish that performance of the K was not excused show that the K was not terminated before breach show it is not unconscionable to make the claim -can create as well as excuse liability in relation to a K. -may be unconscionable to hold a party liable -may be unconscionable to deny liability Judicial Law Estoppel IF one party: induces a party to assume a fact (e.g. K has been formed, K hasn t been formed etc) it was reasonable for that party to assume that fact that party relied on the assumption and departure from the assumption would be detrimental to the party unconscionable conduct is involved Estoppel can be used when to prevent one party from departing from an assumed fact because it is deemed unconscionable to allow the party inducing the assumption to depart from it. A party may be estopped from: asserting a particular construction of a K relying on particular excuse terminating the K due to frustration, failure of condition, or breach If one party engaged in unconscionable dealing in the making of the K, the other party, the other party may be excused from performance. A party is also excused from performance

2 if a K was obtained by misrepresentation, mistake, duress or undue influence. (all constitute unconscionable conduct) Courts are generally reluctant to apply estoppel in commercial cases. Estoppel can be applied when no contract has been made, the court just treats parties as though a K did exist. Equity can override exercise of rights by one party where it would be unconscionable. Statutory unconscionability Trade Practices Act 1974 & State & Territory legislation gives power to courts to protect parties against loss from unconscionable conduct in trade or commerce. s. 51AB - supply of goods and services to consumers. Refers only to forms of unconscionable conduct recognised by judicial doctrine. s. 51AC - supply and acquisition of goods in small business. Lists maters which the court may consider when determining whether unconscionable conduct has occurred. s. 51AA - everything the other two sections do not cover. unconscionable conduct is not defined by the Act. Statutes cover unconscionable conduct more widely than judicial doctrine. Sections 51AA, AB & AC do not deal with contracts, the link to contracts is made in remedies. (s 87) Court is given the power to: declare a K void vary a K refuse to enforce a K Can also order parties to : pay damages repair goods supply services Formation of Contracts Elements of a K The following 3 elements must exist: Agreement (offer & acceptance) Intention (intention to create legal relations) Consideration (exchange) Also, legality, certainty of terms & formality A K needs: at least two parties a promise an exchange (bilateral or unilateral) *Exchange: must exist for there to be an offer & acceptance. Promise or performance only constitutes acceptance if it is in response to the offer, being fully aware of the exchange

3 E.g. Reward for missing dog if found. A finds dog but is unaware of the offer of a reward & therefore is not accepting the offer of a reward by performance & is not entitled to it. *Offer: to show a party made an offer they need to identify an express or implied promise to perform an act in exchange for another parties promise or act. An offer may be words or conduct but must not be confused with an invitation to treat or statement of intention. Invitations to treat are mere expressions of a willingness to receive an offer. E.g. price list, advertisement, quote, auction etc. An offer can be terminated: can be withdrawn before acceptance offer can expire on a date as previously stated can expire after a reasonable amount of time as decided by the courts on rejection of the offeree on the death of either party Traditionally an offer can be withdrawn at any time before the offer is accepted regardless of any promise to keep it open, unless it would be unconscionable not to do so. Revocation/withdrawal of an offer is not effective until communicated to the offeree. If acceptance of an offer requires a series of acts performed over time, once these acts have begun the offeror cannot withdraw the offer. *Acceptance: occurs when the offeree makes the specified counter promise or performs the specified act, in response to the offer and before the offer expires. Acceptance must be communicated to the offeror. In uni-lateral Ks the performance is the acceptance. In bilateral contracts, communication is necessary & acceptance is not valid until the communicated to the other party, not to any 3rd parties. Silence cannot constitute acceptance,(felthouse v bindley) unless in conjunction with other circumstances (empirnall holdings). In regards to mail, the postal acceptance rule applies. This means that acceptance is effective upon posting rather than on the arrival. Acceptance must conform to the offer. If terms are changed, added or removed this becomes a counter offer and the original offer no longer stands. A request for information in not a counter-offer, it does not convey rejection and is therefore still acceptance. (Stevenson Jacques v McLean) If the offer has stated a particular method of acceptance, it must be adhered to. Sometimes it can be difficult to pinpoint the exact moment of offer & acceptance. In these circumstances the court may adopt the global approach. Global approach - looking at the correspondence and conduct of the parties as a whole to decide whether a contract has formed. This may be used in regards to: -buying tickets -long negotiations -document of exchange

4 Estoppel can apply in regards to offer and acceptance when one party was led to assume and offer or acceptance occurred. *Consideration: promise or act of each party must be good consideration. Must be given in exchange and have value. A past promise or action cannot be good consideration. E.g. a promise to pay for performance that has already occurred cannot be enforced as the performance is not exchange for the promise because it has already happened. If a boss promises to pay a higher wage for work that has already been completed (and previously payed for) it is not an enforceable promise as the employee has not offered any consideration for the promise. An unconditional promise is a gift, not consideration as there is no exchange. A conditional gift is not an exchange if made w/ the intention of being charitable. Consideration must have value recognised by the law but does not need to be of equal value. Parties are free to make their own bargains, this is consistent w/ freedom of contract. However, if the court finds the exchange has no value, this is not good consideration. Examples of consideration which may have no value: -illusory promise, illegal promise, promise to perform already existing obligation(unless the court find it is of practical benefit to the promisee), promise to refrain from pursuing a claim of no substance (agreements to settle out of court are upheld). Estoppel can apply if one party is led to believe a consideration had value etc. *Intention: intention to create legal obligations must exist (objectively!) Ask: Is intention reasonably inferred in the circumstances? Commercial agreements: legal relations are presumed, unless parties express or imply otherwise. Non-commercial agreements (b/w family & friends): presumed to not be binding, unless of a commercial nature e.g. dispute w/in a family business. It is harder for parties to prove that a commercial agreement is not binding than to show that a familial arrangement is binding. High Court says Ks made by Crown are enforceable, yet cases show otherwise. Often obligation will only arise upon the performance of a specific act. Estoppel may be applied if one party is led to assume a legal obligation exists. *Certainty of terms: required of essential terms. If an important term is left out or is uncertain the K may not exist. Less important terms may be provided by the court where possible. If holding the parties to the K, regardless of the terms, is more equitable then the courts will uphold it.

5 Omissions: courts may imply an agreement to do what is reasonable. Sometimes an open K is made which omits all details that can be provided by the courts. E.g. the price if it can be calculated on market value. Deferred terms: when terms have been left to the decision of a third party or to the other party to decide at a later date, a K still exists. If an important term is deferred, this is an agreement to agree, not a K. Ambiguity: court can supply/correct words where it is obvious what the parties meant or if there is a standard operation. *Privity of K: only the parties privy to the K can enforce it and it cannot be enforced against a 3rd party. If a 3rd party claims breach of K this is a claim to the benefit of the K. If a 3rd party is held liable, this is a claim to enforce the burden of the K. For a person to enforce the K they must be a party to the K and a party to the consideration. - they must be directly involved in the formation & performance of the K. - can be inconvenient, 3rd parties may act in reliance on a K but have no way to enforce it. WA & QLD & NT have passed Acts allowing 3rd parties to enforce in some circumstances e.g. insurance claims The rule can be overcome by: converting a 3rd party into a contracting party. - Agency: although A & B are the parties, C may be B s principal and is therefore the contracting party. - Joint Parties: one parties promise may be made to two joint parties. allowing enforcement of non-contractual rights by a 3rd party - Trust: one party may be trustee of a 3rd party and may be compelled to enforce the K Estoppel can apply, allowing a 3rd party to enforce a K where they had been led to believe they had the right to. Breach Breach of a K occurs when: - a party fails to perform the K - a party shows unwillingness or inability to perform (if this occurs before performance is due, this is anticipatory breach. Performance must comply w/ the K, partial completion is a breach of K, as is any performance that does not comply w/ the K - even if it is more valuable! Construction of K Ascertaining the terms of the K - construing the K to arrive at its construction. - Admissible evidence: if it is recorded in writing, unrecorded terms may be inadmissible (parol evidence rule) - Actual terms: the terms which the parties agreed to incorporate.

6 - Implied terms: universal, generic & specific - Terms limiting liability: may be singled out by the court - Unconscionability: plays a role The aim of construction is to determine what a reasonable person in the parties situation would have intended or assumed. *Admissibility of evidence: If a written document is meant to be the whole concluded K, oral and other extrinsic evidence may be inadmissible (parol evidence rule). However, if the document is only intended as partial recording of the agreement, other terms may be admissible. Evidence of a prior K that was given in consideration of the other parties entry into the current K IS admissible & is called a collateral K. If a mistake was made in the recording of the K, either party may apply to the courts to have it rectified. Evidence of variation to the K (after it has been agreed to, not prior) is admissible. *Actual Terms: those which the parties intended to include in the K. Statements made prior to the K are not binding & inadmissible - even if it induced one party to enter into the K. A signature indicates accpt. of all terms read & unread - provides a barrier to any precontractual terms. *Implied terms: K can also include terms implied by the courts to fill gaps & regulate enforcement. The 3 types: Universal terms, Generic terms, Specific terms. Universal terms of co-op: each party will perform their part of the K to the best of their ability to enable the other party to benefit. They must protect each others interests. Generic terms: are implied in all K s within a certain class e.g. employment K s, land K s Guidelines for specific terms: -must be reasonable & equitable -must be necessary (for business efficacy) -must be capable of clear expression -must not contradict w/ any express terms Terms limiting liability E.g. exclusion, exception & exemption clauses, disclaimers. They limit the liability of one party in the case of breach of K. Unless prohibited by statute they are valid. They are subject to special scrutiny by the courts. The onus to is on the party attempting to use the term to escape liability (defendant) to prove: -the term was included in the K -the term applies to said breach

7 Excuses Obligation to perform a K may be excused if: - misrepresentation was involved - duress or undue influence was applied by the other party - unconscionable dealing was involved - written evidence was lacking - lacking legal capacity to enter a K - K is illegal - K has been terminated *Misrepresentation: if a K was made based on a false belief induce by the other party (even if done innocently), it may be invalid. Rules of misrep. are of judicial origin. Applies to statements & conduct. Gives the innocent party the right to rescind. The K id only void if the party exercises this right. The courts will try to restore the parties to their pre-contractual situation. The right to rescind may be lost if: - the K has been executed on both sides - the party has undertaken any activity that suggests it will not exercise the right - the K excludes the right to rescind Misleading conduct is defined by the Trade Practices Act as conduct that is misleading or deceptive. *Mistake: If a party enters into a K as a result of a serious mistake it may be excused from performance. A party may be able to apply for rectification. *Duress & undue influence: Gives the innocent party the right to rescind *Informality: Some K s require evidence in writing e.g. property, loans, cars, tenancy agreements, insurance etc. Courts have accepted casual documents (minutes,invoices,receipts) If a K should be in writing & isn t but a party has begun performance it may be able to force the other party to perform regardless of the formality of the doc. Estoppel can be applied. Informality may declare a K invalid but this does not mean it is wholly inoperative. *Incapacity: There are people who do not have the legal capacity to enter into a K. - minors: can only enter into a K of necessity e.g. food, shelter, education - those w/ a mental disability: if they can show that at the time they were incapable of understanding the K AND the other party ought to have been aware of this incapacity, they may be excused from performance - those under the influence

8 *Illegality & public policy: A K must be of a legal nature. It cannot be an agreement to perform an illegal act or an act against public policy. If a K is illegal, the court may raise the motion of its own accord, independent of the parties. Against public policy includes: - unlawful conduct - prejudicial to the status of marriage - sexual immorality - defrauding the revenue - prejudicing the impartiality of public officials If only part of the K is illegal, only the illegal part will be severed. Termination of K s - result of a frustrating event (ends a K right away) - non-fulfillment of performance - breach - consent *Frustration: events that were not provided for in the K have effected the K or the parties so adversely that performance is impossible. E.g. - state intervention - physical destruction - death or incapacitation - non-occurrence of an expected event - war If the event was included in the K or assumed by a party it cannot constitute frustration. If the event occurs due to one party, frustration cannot be relied upon. In the event of frustration, the courts may adjust the position of the parties to prevent unfairness. E.g. one party may have paid for performance prior to it being completed & due to frustration the performance will not be completed. One party is out of pocket & they are unequal - the court will attempt to rectify this. *Termination for breach: Termination for breach can occur if: - the K allows for it - it is a serious enough breach to constitute termination. Breach which may justify termination: - repudiation: inability or unwillingness to perform - breach of essential terms & conditions - breach causing substantial loss of benefit Termination due to breach - this right must be exercised by the party to come into effect. If exercised, termination must be communicated to the other party. *Termination by consent: Parties choose to willingly terminate the K. This can be done by - a new K