The Law Handbook 2024

Chapter 7.1: How contract law works 677 Even after turning 18, a person cannot confirm a prior contract and then become bound by it. Any money paid by a young person under such circumstances may be recovered. Bankrupts Bankrupt people are not deprived of their general capacity to enter contracts. However, there are provisions of the Bankruptcy Act 1966 (Cth) ( ‘Bankruptcy Act’ ) that relate to dealings and contracts by bankrupts. For example, applying for or buying goods and services on credit for an amount of $3000 or more without disclosing your bankruptcy is an offence and you would be liable for a penalty under the Bankruptcy Act (s 269). (See ‘The effect of bankruptcy on debts’ in Chapter 5.3: Understanding bankruptcy.) Corporations A corporation is an artificial body created by law. A corporation has a legal existence that is separate from the individual people who constitute it. However, a company has the legal capacity of a natural person and therefore has the capacity to enter into contractual relations (see s 124 Corporations Act 2001 (Cth)). This is so even if there is an express prohibition contained in the company’s constitution that governs its operations. Such transactions are not deemed void simply because the exercise of such powers is in breach of the restrictions placed in the company’s constitution (s 125(1)). A company has the capacity to enter into contractual relations, but such relations are only binding on the company if those acting on behalf of the company do so with the company’s express or implied authority (s 126(1)). The courts have been quite liberal in their interpretation of implied authority. It has been found that in cases where directors with express authority have acquiesced and allowed a director with no authority to frequently enter contractual relations on behalf of the company, that such directors have implied authority and therefore can contractually bind the company. Prisoners During their imprisonment, prisoners may enter contracts, including contracts to buy and sell property. The usual restrictions about supervision and censorship of anything coming into prisons applies, so the permission of Corrections Victoria is required before a prisoner may sign for, deliver or receive any document. (For more information, see Chapter 3.8: Imprisonment and the rights of people in prison.) 5 Consent Entering into a contract must involve the elements of free will and proper understanding of what each of the parties is doing. In other words, the consent of each of the parties to a contract must be genuine. Only where the essential element of proper consent has been given is there a contract that is binding upon the parties. Proper consent may be affected by any of the following matters: • mistake; • misrepresentation or misleading conduct; • duress; • undue influence or unconscionability; and • unfair contract terms in standard form contracts. Mistake Only limited types of mistakes will cause a contract to be non-binding on the parties: they must be mistakes that go to the very basis of the agreement. For example, if both parties assume a car exists, but the car has actually been destroyed by a fire, then any contract of sale for that car would be non- binding on the parties. By contrast, where the parties are only mistaken about the model of the car, the mistake does not go to the heart of the bargain and so such a contract would be binding. Another example is when a person signs a written document mistakenly believing that it relates to something different from what it actually relates to. In this case, the person may not be bound by it. This means that if A signs a document that A reasonably believes to be a character reference to assist B obtain a loan from a finance company, and the document is actually a guarantee of the loan contract, then the guarantee would not be binding on A. A third example is when C cannot read, due to blindness, illiteracy or other disability. Someone else tells C what is in the document and C signs it. The document C signed is not what C was told it was. The document C signed would not be binding on C. By contrast, if a person who signs a document – believing it to be a contract – does not read the terms