The Law Handbook 2024

674 NOTE The law in this chapter is current as at 1 September 2023. What is a contract? A contract is a legally binding agreement between two parties. A contract is valid and enforceable if the agreement contains sufficient evidence of the following elements: 1 an offer and an acceptance; 2 a common intention between the parties to create a binding legal agreement; 3 the giving of ‘consideration’ for the promise; 4 legal capacity of the parties to act; 5 genuine consent of the parties; and 6 legality of the agreement. An agreement that lacks one or more of these elements is not a valid contract. Must contracts be in writing? No; not all contracts need to be in writing. In some cases, statute law requires contracts to be in writing (e.g. contracts to buy and sell land, to buy a car, and door-to-door sales contracts). However, it is always useful to write down the terms agreed to by the parties so that there is less potential for dispute about what was agreed. A written contract can be drawn up by writing out all the terms agreed to by the parties and getting each party to sign and date the document, either electronically or in person. You do not need to use legal or formal language in a contract for it to be enforceable. The most important thing is that the language used in the contract is clear and precise so that both parties understand what is being agreed. It is useful to keep any documents relating to the agreement (e.g. quotations, invoices, receipts, emails), so that if a dispute does arise, these documents can assist to resolve any differences between the parties. Elements of a contract 1 Offer and acceptance A contract is formed when an offer by one party is accepted by the other party. An enforceable offer must be distinguished from mere willingness by one person to negotiate further details with the other party. For example, A offers to make and sell calendars featuring Australian paintings to B. Before any agreement is reached on size, quality, style or price, B decides to not proceed further with A’s proposal. At this stage, there is no legally binding contract between A and B because there is no definite offer for B to accept until the essential terms of the bargain have been decided. An offer does not need to be made to a specific person. It can be made to a class of people, or to the whole world. An offer is a definite promise to be bound, provided the terms of the offer are accepted. This means that there must be acceptance of precisely what has been offered. For example, a used car dealer, A, offers to sell B a Holden panel van for $1000, without a roadworthy certificate. If B decides to buy the Holden panel van, but insists on a roadworthy certificate being provided, then B is not accepting A’s offer. Rather, B is making a counter offer. It is then up to A to accept or reject the counter offer. A person can withdraw the offer that has been proposed before that offer is accepted. For withdrawal to be effective, the person who has proposed the offer must communicate to the other party that the offer has been withdrawn. To continue the example above, A may say to B that he will check with his supervisor and maybe a roadworthy certificate can be provided. If, while waiting for a reply, B decides he no longer wants to buy the Holden panel van and tells A of his change of mind, then there is no binding contract. It is always advisable to have the details of such conversations in writing, so follow-up any conversations about contracts with an email or letter confirming the details of the conversation. How contract law works 7.1 Contributor: Evelyn Tadros, Barrister