Contract Law: Formation and Enforcement

The provided text consists of a list of references related to contract law, with a focus on Australian legal perspectives. The sources cover various topics such as contract formation, interpretation, enforcement mechanisms (including good faith), and economic theories underpinning contract law. The collection suggests an analysis of Australian contract law, exploring its principles, challenges, and the influence of social norms and economic considerations.

Running head: CONTRACT LAW 0
Business Law Assignment

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Answer 1).
There are several requirements which must be completed in order for a contract to be legally
binding by the law. According to Treitel (2003), the provisions and regulations of England’s
contract law have significantly influenced the law of contract in Australia. Following are the
requirement necessary for the legally binding contract:
 Agreement: To establish an agreement between two parties it is necessary that there
must be an offer and acceptance. As per Carter, Harland, and Lindgren (1996), an
offer can include performance or non-performance of a specific activity and the
person presenting the offer is known as ‘Offeror’. Other parties who are known as
‘Offeree’ must accept such offer without altering or introducing new terms in the
agreement.
It is necessary that parties of the contract must not change or alter its conditions, or
else the agreement cannot be established. The condition or task of an offer must be
legal, in case an agreement is conducted for illegal activities than such agreement will
be void ab initio.
 Intention: As per Peden (2011), intention means motive or will of the parties for
entering into a contract. It is necessary that both the parties to the contract must have a
similar intention for entering in the contract. If the parties sign a contract but both of
them have separate intentions, then such contract will be void. The intention of the
parties to a contract must be acquired by without using any force or illegal activity.
 Consideration: It is the payment made by one party in lieu of the promise made by
another party in a legal contract. Smith and Atiyah (2006) provided that the
consideration provided in a legal contract must have certain worth and it must be
legal. Without a valid consideration, a contract cannot be established in-between two
parties. The consideration of a contract must have monetary value and the worth must
be certain and fix, for it to be valid.
 Capability: While entering into a legally binding contract, it is necessary that parties
of the contract must understand its terms and capable to enter into such contract.
According to Paterson (2009), the parties must be of legal age to enter into a legal
contract, in Australia, the parties must be 18 years old or above. The parties must be
sound minded meaning they easily understand the condition of contract and know its

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legal implications. Another requirement is that none of the party of the contract must
be declared insolvent by the court.
 Certainty: The conditions or the terms of the legal contract must be contained and
fixed. According to Carter and Peden (2003), the terms cannot be changed by the will
of any party; to change such terms, permission of both parties must be necessary. If
any party added or removed any terms form the contract, another party shall not be
legally binding to perform such activities.
Answer 2).
To bind a contract upon parties, it is not essential that such contract must be written. The
validity of a contract is depending upon various factors, for example, there must be an offer
and acceptance. The offer provided by offeror must be accepted by offeree without change or
alteration in the terms of agreement. As per Governatori and Milosevic (2006), a valid and
legal consideration must be available in the contract which has certain monetary value. The
intention for the acceptance of contract’s term must is acquired without any illegal force. The
parties of the contract must not be minor, insolvent or unsound minded. The term prescribed
in the legal contract must be fixed. After complying with above provisions, a contract can be
legal in any form, either oral or written. The legal status of both contracts is similar in the
eyes of law and both of them are legally binding upon the parties to contract.
The parties of a contract can decide the format according to their requirements. But, in case
of an oral contract, it became difficult for parties to enforce its terms when there is no witness
available while the contract was established. Arrighetti, Bachmann, and Deakin (1997)
provided that if there is no witness available, the parties of contract can deny its conditions or
provided new conditions which were not available in original contract. It is difficult for
parties to provide the evidence for the effectiveness of a legal contract.
Another problem of an oral contract is that if a long time has passed since the contract took
place, then the parties of such contract started to forget its terms. Without a witness or proper
evidence, it is significantly difficult for the court to enforce the terms of contract over the
parties. The status of oral or written contract is similar in law but there are many difficulties
faced by parties while executing the oral contract conditions. There is a high chance of
vagueness in the condition of a contract when it is performed orally by the parties
(Appleman, Appleman and Holmes 2016).

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In case of a written contract, the conditions are written by parties which cannot be changed
easily. As per Joughin (1998), the signature or seal of the parties ensures the authenticity of
the written contract. When a party decided to change the condition of a written contract, they
have to take permission from another party. The vagueness in the circumstances of a contract
can be avoided by parties if the contract is conducted in written format.
A written contract can be enforceable after a long time even if the parties forgot the terms of
such contract. The conflict causes due to the vagueness of condition can be avoided by the
parties if they enter into a written contract. Solan (2001) provided that the work of court also
becomes easier since there is no requirement of proof or evidence. The written contract has
more benefits as compared to an oral contract. For companies or businesses, the written
contract is significantly better than oral since they enter into many contracts due to their daily
activities. A written contract is better than oral since it ensures the implementation of
contract’s terms over the parties.
Answer 3).
Proper guidelines have been provided by law regarding the formation of a formal contract.
There are several formalities which must be fulfilled by the parties in order to enter into a
formal contract. A formal contract is different from normal contract since it does not require
an essential element of normal contract to enforce its conditions. A formal contract does not
require a consideration of its validity. Usually, a formal contract has a time limit of twelve
months for its applicability. Following are two examples of formal contracts:
 Contract by Deed or Contract under Seal: These contracts are prescribed in a
specific format and it requires a witness attestation for its validity. According to Ryall
and Sampson (2009), the witness must be a third party who has no interest in the
contract, such witness must put his signature and seal over the contract to attest the
contract. The lease for buying a house or a deed of the loan taken for the car is an
example of a contract of the deed.
 Contract of Record: The contract of record are the legal contracts, the intention of
parties is not an essential factor in the contract of record. As per Ayres and Gertner
(1989), usually, the intention of parties must match to for validity of a contract; the
intention is not an essential part of the contract of record. The example of a contract
of record includes the order passed by the court under a civil or criminal case. In a

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particular case, the order passed by the court will apply over the parties of such suit;
the intention of such parties is not required. An injunction or summons issued by a
court in a suit is also an example of a contract of record. The injunction or summon
can force the parties to perform certain duties of the court which can be legally
enforced without their intentions.
Answer 4).
One of the essential requirements for a legal contract is the intention of the parties to such
contract. Skyrms (2014), the parties to the contract must have a similar intention for legally
binding the terms of such contract over themselves. Therefore, the contract established
between family or friends in social situations cannot be legally binding by any of such parties
because of the lack of intention. But, in several cases court has considered the social contract
as legally binding if they contain the essential elements of the contract.
For example, in Simpkins v Pays (1955) 1 WLR 975 case, three friends decided to purchase a
lottery ticket but only one of them has money to buy the ticket. They decided that other two
friends will pay their share later and they bought a lottery ticket. After winning the lottery,
the friend who bought the ticket said it was a social contract which cannot be enforceable by
law. The court provided that all the parties have intention pay the amount of ticket which
makes it a legal contract and the prize of the lottery must be divided between friends (Greig
and Davis 1987).
In Trevey v Grubb (1982) 44 ALR 20 case, a similar decision was taken by the court. The
friends who decided to purchase a lottery by pooling together their money are considered as
the parties of a legal contract. All the essential requirement of a contract is met by them such
as agreement, intention, capability, intention, and consideration. The court gives the order for
equally dividing the lottery prize in-between friends.
In the given case, similar provisions are also applied; all the requirements of essential
conditions of a legal contract are present in the case. The intention of parties was to enter into
a legal contract at the same time; therefore, the claim made by a friend that their arrangement
was social is not correct. The amount of prize should be divided into the groups of friends.

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Answer 6).
The rule of vicarious liability is significantly important in Australian law of torts. McGlone
and Stickley (2005) provided that the law of vicarious liability provided that principal should
be liable for the illegal actions of his agent since the agent performs his duties according to
his principal directions. In case of the relationship of an independent contractor and
employer, the rule of vicarious liability does not apply. An agent and independent contract
have absolutely unrelated relationships in the eyes of law.
In Australian law, the duties and responsibility of an independent contractor are prided under
the Independent Contractors Act, 2006. As per Hall (2006), this provides the status of
independent contractor and defines his liability towards his actions. The Fair Work Act, 2009
provides the provisions for the protection of the rights and status of an independent
contractor. The contract between the independent contractor and his employer contains the
description of the job and the relation of both the parties. The legal position of an agent is
absolutely dissimilar than an independent contractor (Manson 1987).
The contract for service contains the provisions of agent-principal relationship. The actions of
an agent are in complete control of his principal. Laffont and Martimort (2009) provided that
the principal provide the work to his agent and also provide the method in which such job is
performed by the agent. In case of an independent contractor, the employer did not have
control over his activities. The employer hires the independent contractor for completing a
job and method of such work is selected by the contractor. The negligent actions or illegal
activities of an independent contractor did not apply to his employer and the employer cannot
be held liable for such actions. The negligence of agent, however, makes the principal liable
because the actions are controlled by the principal. It is necessary that both the relationships
are defined correctly in a court, so that principal can be held liable for the negligence of
agent.

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References
Appleman, J.A., Appleman, J. and Holmes, E.M., 2016. Contract Concerns: Reinsurance
Contract Formation, Validity, And Judicial Construction (Vol. 14). Appleman on Insurance
Law and Practice.
Arrighetti, A., Bachmann, R. and Deakin, S., 1997. Contract law, social norms and inter-firm
cooperation. Cambridge Journal of Economics, 21(2), pp.171-195.
Ayres, I. and Gertner, R., 1989. Filling gaps in incomplete contracts: An economic theory of
default rules. The Yale Law Journal, 99(1), pp.87-130.
Carter, J. and Peden, E., 2003. Good faith in Australian contract law.
Carter, J.W., Harland, D.J. and Lindgren, K.E., 1996. Contract law in Australia. MICHIE.
Governatori, G. and Milosevic, Z., 2006. A formal analysis of a business contract
language. International Journal of Cooperative Information Systems, 15(04), pp.659-685.
Greig, D.W. and Davis, J.L., 1987. The law of contract. Lawbook Co..
Hall, R., 2006. Australian industrial relations in 2005-The WorkChoices revolution. Journal
of Industrial Relations, 48(3), pp.291-303.
Joughin, G., 1998. Dimensions of oral assessment. Assessment and Evaluation in Higher
Education, 23(4), pp.367-378.
Laffont, J.J. and Martimort, D., 2009. The theory of incentives: the principal-agent model.
Princeton university press.
Mason, A., 1987. Future directions in Australian law. Monash UL Rev., 13, p.149.
McGlone, F. and Stickley, A.P., 2005. Australian torts law. LexisNexis Butterworths.
Paterson, J., 2009. The Australian Unfair Contract Terms Law: The Rise of Substantive
Unfairness as a Ground for Review of Standard Form Consumer Contracts. Melb. UL
Rev., 33, p.934.
Peden, E., 2001. Incorporating terms of good faith in contract law in Australia. Sydney L.
Rev., 23, p.222.

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Ryall, M. D., & Sampson, R. C. (2009). Formal contracts in the presence of relational
enforcement mechanisms: Evidence from technology development projects. Management
Science, 55(6), 906-925.
Skyrms, B., 2014. Evolution of the social contract. Cambridge University Press.
Smith, S.A. and Atiyah, P.S., 2006. Atiyah's Introduction to the Law of Contract. OUP
Oxford.
Solan, L. M. (2001). The written contract as safe harbor for dishonest conduct. Chi.-Kent L.
Rev., 77, 87.
Treitel, G.H., 2003. The law of contract. Sweet & maxwell.