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Contracts are central to everyday business operations. They are involved in the majority of business agreements such as those for the sale or supply of goods and services, insurance contracts, financing contracts, employment contracts and contracts for the sale of land. In Australia, contract law is primarily created and regulated by precedents or the ‘common law’, but increasingly legislation is accompanying the common law of contract – particularly in relation to business agreements.
What Is a Contract?
A contract is a legally enforceable promise or agreement to which all parties consent. For an agreement to be binding as a contract, a number of requirements must be satisfied:
- Certainty – This requires that the contract be sufficiently complete, sufficiently certain and clear as to parties or who the people or entities bound by the agreement, and must not be illusory (false, deceptive or misleading).
- Intention – The second element necessary for a valid and enforceable agreement is that the parties intend that the agreement should be legally binding. The parties must manifest a clear intention to be legally bound by the terms and conditions of the agreement, which can be stated in the agreement or inferred from the circumstances such as the conduct of the parties.
- Offer and acceptance of a business contract – Once intention has been established, a contract can be formed when one party makes an offer and the other party accepts. An offer can be withdrawn before it is accepted. However once an offer has been accepted, and the parties have agreed, this element can be established.
- Consideration of a business contract – Generally, the law of contract does not enforce agreements made without the expectation of any return. This is referred to as “consideration”. Consideration is concerned with the bargain of the contract and may be a right, interest or benefit that is conferred to one party, and a loss, or detriment to the other. For an ordinary business transaction, the consideration is simply the price the purchaser agrees to pay for the product or service. There must be certainty as to consideration, as the agreement must be clear as to what is expected of and by each party.
Does a Business Have the Capacity to Enter Into a Contract?
Under Australian corporate law, a corporation is able to enter into a contract because it is seen to be a legal ‘person’ with all the same rights, such as the ability to enter into a contract. However, under the corporate constitution, the person who is acting on the company’s behalf must have the capacity to bind the company into a contract by either having implied or expressed authority to do so.
The power to enter into a contract usually lies with directors. Case law has ruled that even if a director does not have the expressed authority to enter into contracts, but continually does so with the company’s knowledge, then the director has an implied authority.
Breach of Contract
If a contract is breached by a party then another party may seek to enforce the contract in the courts or tribunals. Generally, the injured party will seek payment to put them in a position that they would have been if the contract was performed, commonly known as “damages”. In other circumstances, the aggrieved party may also seek other alternatives such as a court order stopping something happening, “injunctions”, or requiring something to be done “specific performance”.
The type of remedy and its availability would depend very much on the type of contract and the type of breach. It is important to seek professional legal advice, to ensure you are advised as to the best means of dealing with the problem.
Under Australian contract law, there are rules established in legislation and at common law that make a contract invalid or “void” in certain circumstances. If the agreement is found to be void, it will have no legal bearing, and is unenforceable by law. A contract can be invalidated through:
- Misleading Conduct
- Undue Influence
- Unconscionable Conduct or Dealing
What Can We Do?
If you are planning on entering a business contract, Quinn Lawyers can help you draft the contract and explain the contracts implications now and in the future. If you have already entered a contract we can interpret it for you as well as give you general contractual advice. If you are involved in a dispute regarding your existing contract our experienced team can help you deal with the manner in an efficient cost saving manner. Contact us to organise a consultation. Our dedicated team will deal with your problem in a sympathetic, time efficient and cost effective manner. Send an online enquiry or call us on +61 2 9223 9166.
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The Quinn Group operates Quinn Consultants, Quinn Lawyers, Quinn Financial Planning and Quinn Financial Solutions. The Quinn Group provides related information in regard to legal, accounting and financial planning issues. Liability limited by a scheme approved under Professional Standards Legislation* *other than for the acts or omissions of financial services licensees.