A contract is a legally binding agreement between one or more parties. These agreements set out the terms and conditions of a transaction. If a contract is properly formed, then its terms can be enforced by a court. However, not every document that is called a contract is enforceable. The formation and enforceability of a contract depends on several factors, including the intention of those entering into the agreement, the terms of the contract, and the legal capacity of the parties.

Entering into a Contract

In Australia, a contract does not have to be in writing to be valid: it can be entered into verbally. There are four essential elements of a contract: offer, acceptance, consideration and intention.

An offer is a proposal by one party to enter into a contract with another party. The offer must be clear and unambiguous, and it must be communicated to the other party. An acceptance is the unconditional agreement of the other party to the terms of the offer. Acceptance can be given in writing, verbally, or by conduct that implies acceptance. Consideration is something of value that is exchanged between the parties. It can take many forms, including the exchange of money, goods, or services.

The final requirement for the formation of a contract is the intention to create legal relations. To satisfy this requirement, the parties must have a mutual intention to enter into the contract. This means that they must intend for the agreement to be legally binding at the time they form the agreement.

Enforceability of Contracts

In Australia, contracts are generally enforceable if they meet the above criteria for formation. However, there are certain situations where a contract that meets this criteria is still unenforceable or void. For instance, a contract may be void if it is based on misrepresentation. This can occur when one party made a false statement that induced the other party to enter into the contract in the first place. Duress is another factor that can void a contract. This might happen if one party was forced to enter into the contract under duress or undue influence.

A contract may also be found to be void if it involves illegal or immoral activities. In addition, a contract may not be enforced if one or both parties lacked the necessary legal capacity to enter into the contract. For example, minors, intoxicated persons, and mentally ill persons may lack the capacity to enter into a contract.

Breach of Contract

A contract is binding on both parties, but if one of the parties breaches the contract in an important way, the other party may be entitled to terminate the contract and not fulfil their part of the bargain. However, it is very important to receive legal advice before terminating a contract on the basis of the other parties’ breach. If it turns out the that first party was in fact not in breach, the person purporting to terminate on the basis of the breach will be in the wrong.

If one party breaches a contract, the other party may seek remedies for the breach. The main remedies available for breach of contract are “damages”, which is monetary compensation awarded to the innocent party for losses suffered, and “specific performance”, which is when a court order requires the party in breach to perform the contract. The court may also make orders including “rescission”, when the contract is cancelled and the parties restored to their original position, or “injunction”, when the court restrains one party from acting to breach a contract.

Case Study

Tzaneros Investments Pty Ltd v Walker [2016] is a case where a contract was voided due to misrepresentation. The case involved the sale of a property in New South Wales. The plaintiff, Tzaneros Investments Pty Ltd, was the vendor of the property, and the defendant, Mr Walker, was the purchaser. The contract for sale contained a clause stating that the property was zoned “B4 Mixed Use” under the relevant planning scheme. However, at the time of the sale, the property was actually zoned “R3 Medium Density Residential”. The purchaser later discovered this fact and sought to rescind the contract.

The court held that the vendor had made a material misrepresentation by stating that the property was zoned “B4 Mixed Use”. The misrepresentation had induced the purchaser to enter into the contract, and the court held that the vendor had breached the contract by failing to disclose the true zoning of the property. The court also held that the purchaser was entitled to rescind the contract and receive a refund of the purchase price, as the vendor had breached an essential term of the contract.

This case demonstrates the importance of accurately disclosing information in a contract for sale, and the consequences that can arise if a party makes a material misrepresentation. It also highlights the importance of ensuring that contracts are clear and unambiguous so that they meet the essential elements of contract formation.

Conclusion

While a contract need not be in writing to be enforceable, there are essential elements that must be present when making the contract to determine whether it is valid. A valid contract can be enforced by a court.

If you propose entering into a transaction with another party we recommend that your agreement be in writing and prepared or reviewed by an experienced lawyer.

The information in this article is general in nature and does not constitute professional advice. If you or someone you know wants more information or needs help or advice, please contact us on 0401 513 190 or email [email protected].