Contracts. What is Law Generally accepted “Rules of Behaviour” Contract Law developed from the...

Contracts

What is Law• Generally accepted “Rules of Behaviour”

• Contract Law developed from the need to enforce promises or an undertaking. These promises were enforced by the King represented by the courts

• To ensure that every one received consistent justice, decisions were recorded so that future decisions could be based on similar principles

• The is called Common Law

Sources of Law• Common Law – Is law derived from previous

decisions on cases of similar merits. Known as Judge made law.

• Why is this important?

• To allow for certainty!

• This system has problems, what are they

• Contract Law is based on Common Law

Sources of Law

• Statute Law

• Law enacted by parliament

• Ensure that law will reflect the needs of the community

Source of Law

• Were there is a conflict between statute law & common law

• Statute Law will prevail

• This has important ramifications for Contact Law

• Contract Law has been affected by statute law

Civil Court System in NSW

Magistrates CourtCases up to $40 000

District CourtCases up to $750 000

Appeals

Supreme Court NSWUnlimited

Appeals

CTTTCases up to $500 000

Appeals

Other Tribunalsi.E. Land Environment

Court

Court of Appeal NSW

Appeals

Appeals

High Court of AustraliaFinal Court of Appeal

Appeals

Federal Court of AustraliaCommonwealth Matters

Bankruptcy, Trade Practices

Full Bench Federal Court of Australia

Each State will have a similar system

Civil Court System in NSW

Magistrates CourtCases up to $40 000

District CourtCases up to $750 000

Supreme Court NSWUnlimited

CTTTCases up to $500 000 Other Tribunals

i.E. Land Environment Court

Court of Appeal NSW

High Court of AustraliaFinal Court of Appeal

Federal Court of AustraliaCommonwealth Matters

Bankruptcy, Trade Practices

Full Bench Federal Court of Australia

Binding Precedence

Lower Courts are bound by decisions from a superior court in their jurisdiction

District Court of NSW is not bound to follow decisions of the Supreme Court of Victoria

Contracts

• What is a Contract ?

• A legally enforceable promise by one party do something or to refrain from doing something

• To be legally enforceable the agreement must comply with Common Law requirements for a valid contract

Essentials of a Valid Contract

• Intention for the parties to enter into a legal relationship enforceable by law

• Offer & Acceptance• Valuable Consideration or execution under

seal• Legal Capacity to Act• Genuine Consent• Legality of the Objects of the Contract

Intention

• Is there an intention to enter into a legally binding agreement

• Social Agreement are presumed no• Business Agreement are presumed yes• Intention can be expressly excluded

Offer

• Offer may be in writing, verbal or implied by conduct

• Offer must be communicated• The Offer can be withdrawn at any time

before acceptance (Postal Rule)• An offer will lapse if

- not accepted with in a stated time- not accepted within a reasonable time- a counter offer is made by the other party

Offer

• Invitation to Tender is not an offer – Invitation to treat

• Offer will terminate on rejection

Acceptance

• Must be final and not qualified (other wise it is a counter offer

• Only person who offer has made to can accept• Silence is ineffective• Conduct can constitute acceptance• Once accepted no other negotiations can be

conducted• Method of Acceptance can be specified (See

Postal Rule)

Valuable Consideration

• Something of Value – Usually Money• Does not have to be a fair deal

• Simple Contracts must have consideration

This is the fundamental Difference between a contract & a promise

Legal Capacity• Minors generally do not have legal capacity except

-Items of necessity-Items that are beneficial

• Mentally ill do not have capacity• An intoxicated person does not have capacity

- but on sobering up can affirm the contract• Corporations are treated as individual entities and have

capacity to contact – beware who you are contracting to• Alien Enemies capacity is reduced• Convicts have capacity• Married Women – Unfortunately are allowed to contract to

receive credit cards

Genuine Consent

• The consent must not be induced by deception of fraud

• Contract can not be formed under duress• Contract cannot be formed by Unconscionable

Conduct

Legality

• The object of the contract cannot violate Statute law- you can not contact to kill someone and then expect a court to enforce payment

• Illegal under Common Law- Contract to commit a tort- Promote Corruption- Prejudicial to Administration of Justice- Prejudicial to Public Safety

Forms of Contract

Simple Contracts

• Can be either Verbal or Written

• Implied

• Can evidenced by Written Communication

Forms of ContractFormal Contracts

• Derived from old law before the Common Law principles of Contracts was developed

• Method to make promise enforceable

• Must be written

• Sometimes referred as Deed

Forms of Contracts

Express Contract

• Normal Type of Contract• Conditions & Warranties documented• Supporting Documents i.e. Drawings, Spec etc• Dispute Resolution Process?• Time For Completion• Liquidated Damages Spelt out

Form of Contract

Implied Contract

• Contact constructed by the courts• Actions or Inactions by the parties indicate a

contract exists• Conditions & Warranties to be determined by

the court at a later date

Implied Contracts

• Builder Contracts to build house on C1 block of land

• By error Builder builds on C2 land which is next block. C1 is unaware of this.

• Most evenings C2 has a beer with the builder and has a chat.

• C2 has an implied contract and must pay the builder. C2 has a duty to stop the builder

Contract Terms

Condition • Major requirements of the Contract

• Fundamental to the contract

• Breach allows innocent party to either Terminate the Contract or Sue for Damages

Contract Terms

Warranties • Minor Term of the contract

• Contract is not substantially different

• Breach allows innocent party to sue for Damages

• Termination will be a breach of contract and innocent party may be liable for damages

Contract Terms

Innominate Terms• May either be a warranty of Condition

(Paint one door the wrong colour v’s the whole building)

• Is a subjective assessment

• Most terms will fall in this area

• Must take care in dealing with these breaches

Operation of Contract

Privity• Only parties to a contract have rights and

liabilities under a contract• A contracts with b to build a house for C • C cannot sue A for any breach

Operation of Contract

Assignment of Contract• Rights to a contract by be assigned to a third

party• Novated Lease is an example of this

Discharge of Contract

Discharge of Contract - Conclusion1. By performance2. By agreement before completion3. Operation of Law

-Bankruptcy - Liquidation-Merger ?-Fraud

Discharge of Contract

Impossibility of Performance - Frustration1. Absolute Impossibility- contract to renovate

house, house burns down 2. Radical Difference – Change of Council or

Government Conditions, Court Injuctions3. Supervening Illegality –Law is Changed after

contract is formed to make it illegal?4. Futility –Where purpose of the contract is

no longer valid?

Discharge of the Contract

Time - Unless time is a Condition of the contract a contract will not lapse

Discharge of the Contract

• Breach of Contract- Not every breach of contract allows for the termination of the contract

Before this action is taken legal advise should be sought.

• A court will determine whether the breach was substantial enough

• Innocent party may be liable for damages

Damages

• Unliquidated- Determined by Court

• Liquidated Damages- Genuine Estimate of loss agreed to in contract

• Penalty- if loss is not Genuine classed a penalty and will be reduced to genuine loss

Types of Contracts

• Depending on the Client and Nature of the works will depend on the type of contract

• Refer page 17 & 18

Types of Contracts P 20

• Lump Sum• Cost, plus a fee• Cost plus a percentage• Schedules of Rates• Labour Only• Do and Charge• Design & Construct

Building ContractsBasic Structure

• Contract Period- Specified Time for Contract to be completed- Builder has Control of Site

• Practical Completion- The works have reached a stage that is suitable for use by the client- Transfer of Works to client- Insurance by Client

The Agreement

• Names Of Owner & Builder• Description of the Works – Tender/Qoute• Drawings/Specifications• Contract Sum• Contract Terms• Signatures

General Conditions

• Form of the Agreement

• Specifies the operation of the contract-Dispute Resolution- Payment Schedule-Access by Client- We will be look at a HIA Contract

Status Of Owner – Type of Contract

• Government – will have there own form or may use standard form with their own terms

• Statutory Bodies – generally use government conditions

• Large Companies – Will have their own terms

• Smaller Companies – Standard Form Contracts

Other Factors that may Affect the Contract

• Lending Authorities – Payment Schedule, May appoint Quantity Surveyor/ Clerk of Works, Architect

• Type of Works – New Building, Renovation, Civil Works

• Time Influences – May require contract to start before full documentation is complete –FAST TRACK

Other Factors that may Affect the Contract

• Rising Cost– Provision may be made, Rise & Fall Contract against fixed Cost

Definition - OVERHEADS

• Cost that are incurred that are not directly attributable to the construction process.

Insurance – OverheadOffice Costs – OverheadBricks/ Bricklayers – Construction CostForeman – OverheadCarpenters – Construction CostWorkers Compensation - Overhead

Types Of Contracting Arrangements

• Lump Sum – Builder agrees to complete the documented works for an agreed price.

Agreed price can only change by agreement i.e. variation


• Cost Plus Fee – Builder is paid for all material, labour and subcontractor costs.

• In addition the builder receives a predetermined fee to cover overheads + profit


• Cost Plus Percentage – Builder is paid for all material, labour and subcontractor costs.

• In addition the builder receives a set percentage of costs to cover overheads and profit


• Schedule of Rates – A schedule of rates for construction items is agreed.

• Agreed rates include profit & overheadBrickwork Supply & Install $2.50 per brickWall Framing 2.4h Supply & InstallSupervised Carpenter $65 per hour


• Labour Only – Agreement is to provide labour only at an agreed rate for each trade.

The agreed rate covers the builders overheads & profit.

• Clients usually provides materials


• Do and Charge – Agreement has no fixed price.

• Builder charges what they think is the value of works

• Usually leads to disputes


• Package Deal Design and Construct – Builder is responsible for design and construction based on parameters set by the client.

Standard Printed Contract Forms

• Australian Standards

• MBA

• HIA

• Department of Fair Trading

Definition – Subcontractor

• Contract Between the Builder and other specialised organisations used to complete the works that relate to the Head Contract.

Care should be taken to ensure that the same terms are included as the “Head Contract”

• Good practice would be to use contracts from the same organisation

Definition – Head Contract

• Contract Between the Client & Builder

Builder is called “Head Contractor”.• This definition has applications outside the

contract.

• OH&S Law requires that Head Contractor provide a safe work place.

HIA Contracts

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