Contracts Flow Chart - Notes PDF

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Contract flow chart Did the parties agree to be bound and intend the agreement to be of a legally binding nature (NB: the law presumes parties did not intend to be bound where the agreement is of a social or domestic nature unless there’s evidence to the contrary. The law assumes that the parties did intend to be legally bound if the agreement was commercial in nature unless the parties agree that the promise won’t bind them)?

/

\ No \ No contract

Yes / Was there a valid offer?    

Not just an invitation to treat, can be made to a specific person/persons, class of persons or the whole world. Must be communicated Can be revoked at any time before acceptance

/ Yes

\ No \ No contract

/ Was the offer accepted?           

Acceptance must be in response to the offer Acceptance must be unqualified Conditional acceptance is not acceptance Acceptance must be clear and certain Acceptance may be express or implied Acceptance may be retrospective A counter offer is a rejection of an offer Acceptance must be communicated to the offeror The offeror may prescribe the method of acceptance Offer and acceptance may be electronic The offer must not have terminated by: o Revocation by the offeree o Lapse of time o Non-occurrence of a necessary condition o death

/ Yes / Was there valid consideration/price from the offeree?     

No \ No contract

Is the promise paid for by ‘something for something’? Must move from the promisee but need not move to the promisor Cannot be past Need not be adequate Must be sufficient (part payment is not sufficient, though remember promissory estoppel)

| Yes | Is there legal capacity to contract? 

\

\ No \ No contract

Is one or other party: o A minor o Mentally ill o Drunk or drugged

/ Yes / Is there genuine agreement?

\ No \ No contract

ie, an absence of:  Mistake (does the mistake effect the very existence of the contract? If not, then usually there no right to release if there’s mistake and remedies are restricted)  Misrep (can be mere misrep or major misrep, different remedies available)  Undue influence (no voluntary agreement, if so then the contract will be void on the request of the innocent party or can be rescinded/set aside by the innocent party)  Duress (illegitimate pressure - force, coercion, heavy persuasion to force someone to do something against their will. Where there is duress the innocent part can have the contract set aside or cancel/rescind the contract)  Unconscionability (contract law assumes people contracting meet as equals, conduct that is unconscionable is conduct that should not be done in good conscience, where this occurs courts will sometimes ‘re-write’ contracts to make sure the contract is fair).

/ Yes | Is the subject matter of the contract illegal? | \ Yes No

\ No \ No valid contract

| \ No valid contract A contract exists Then the question becomes - to what have the parties agreed? Look at the facts!

Is there a breach of contract? To work out the consequences we need to know if there was a breach of a condition (essential term) of the contract or a warranty (inessential term). If there is a breach of a condition then the injured party can: 1. repudiate the contract and treat its obligations as at an end and/or sue for damages for loss suffered as a result of the breach. In that case the injured party can affirm the contract and sue for damages. Or 2. the injured party ceases to be under an obligation to perform the contract, although the rights which have accrued until that time continue. If there is a breach of a warranty then the contract does not end. The injured person has to perform under the contract but can claim damages for loss relating to the breach. To decide whether a term is a warranty or a condition depends on whether or not it is essential or non-essential to the contract. A term is essential if the promise would not have entered the contract unless it was going to happen. Is there an exclusion clause? Exclusion clauses are only effective if notice has been given of the exclusion clause.  Was or should the party have been aware of the clause?  Unusual conditions should be brought to the attention of the other party  There are 4 approaches to interpreting exclusion clauses: o If there’s ambiguity in the document as a result of the clause then it will be interpreted against the interests of the person who drafted it o If it’s not misleading or deceptive then you can exclude liability for negligence in a contract – you should make it very clear that’s what you intend, eg ‘will not be responsible for loss or damage of any description etc’ o Exclusion clauses only cover a loss that occurs when a party is performing the contract o If there is a major breach of contract then an exclusion clause won’t work to defeat the main object and intention of the contract Exclusion clauses are now limited by legislation: o A person who does something misleading or deceptive can’t exclude liability for the misleading or deceptive conduct under the ACL; o An exclusion clause may amount to a false representation o Where a case comes under the Sale of Goods Act then the seller can’t exclude the implied terms that a good will be fit for purpose, of merchantable quality, that the seller has good title to the good and that the good will match its description. o Providers of recreational services (eg skiing and horse riding) can limit their liability via exclusion clauses. How can a contract be terminated? o o o o o o o

Performance Agreement Lapse of time Operation of law Frustration Rescission (the setting aside of the parties’ agreement and restoring them to the positions they had before the transaction took place on the basis of court orders. Breach o Where there’s a total breach of contract (one of the parties doesn’t perform at all) or o a partial breach (where one of the parties doesn’t perform the full requirements of the contract) o includes an anticipatory breach  if there’s a breach the innocent party can:  repudiate the contract and sue for damages for a breach of condition  sue for damages if the breach is minor

What remedies are available for breach of contract? The innocent party can affirm the contract or terminate it. If the innocent party decides to terminate it may: o sue for breach of contract or o wait and use the other party’s breach as a defence if sued. In law you might be entitled to o Damages o recission In equity you might be entitled to o specific performance (where the plaintiff has partly performed the agreement or restitution because equity won’t allow a statute to be used for fraud and benefitting from part performance is unfair) or o Restitution, which aims to ensure that the other person should pay for the benefits received under an unenforceable contract.

Contract Australian contract law is governed by common law and statute. Generally, the questions we ask, in the context of the flow chart below, are: Is there an intention to enter legal relations? Or is this an informal, off the record, or social agreement? Is there agreement between the parties?  Offer and  Acceptance Is there consideration? Do the parties have legal capacity? Or are they underage or under the influence of alcohol? Is there genuine consent? What was actually agreed? Was the contract for a legal purpose? If not then it’s not enforceable....