Business Law: Contract Formation, Enforcement, and Liability

This assignment delves into the core principles of contract law, exploring the essential requirements for a legally binding agreement, including agreement, consideration, capacity, intention, and certainty. It examines the differences between oral and written contracts, highlighting the advantages of written agreements for clarity and enforceability. The assignment also differentiates between formal contracts, such as contracts of record and contracts under seal, and analyzes the role of intention in social and domestic agreements versus legally binding contracts, using a lottery ticket case as an example. Furthermore, the assignment explores vicarious liability, differentiating between the relationships of principal and agent and employer and independent contractor, emphasizing the legal responsibilities of each party. The student's work is available on Desklib, a platform providing AI-powered study tools and resources.

Running head: CONTRACTS 0
Business Law

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Answer 1.
England’s contract law has significantly influenced the principles of Australian contract
law; most of the regulations are similar in both laws. As per Treitel (2003), the crucial aspects
of a binding contract are similar in both countries’ contract laws. Following are the essential
requirement for a contract to legally bind a person:
1. Agreement: According to McKendrick (2014), the first condition for a contract to be
legally binding under the law is an agreement between the parties of the contract. An
agreement is created after an offer is made by one party which is accepted by another
party. The offer of a party includes performance or non-performance of a particular
task, which must be accepted by another party. The offeror is the person who makes
an offer to another party, and the party who accepts or denies such offer is called
offeree. The offer made by offeror must be for performance or non-performance of a
lawful act. The offer must be accepted by offeree without any pressure or threat. After
the acceptance of such offer, an agreement comes into existence.
2. Consideration: Every legal contract required a lawful consideration to bind it upon
the parties of the contract. A consideration can include anything which is given in lieu
of a promise to perform or non-performance of certain activities. An agreement
cannot be formed without a legal consideration. As per Carter, Harland & Lindgren
(1996), the consideration is an essential requirement for legal binding of a contract.
Usually, the consideration for a contract can include money or anything which has a
monetary value. It is necessary that consideration has a certain value, without a worth
the consideration cannot be legal.
3. Capacity: The capacity or capability of the parties is necessary while entering into a
legally binding contract. According to Bruce (2014), an incapable person cannot enter
into a legal contract; any contract without the capacity of parties shall be considered
as void ab initio. It is necessary that the person entering into the contract must be able
to understand its legal consequences and then give his approval. A party of the legal
contract must be above the proper age provided under the law that is 18 years. the
person must have a sound mind to understand right or wrong for himself. It is also
necessary that the person must not be insolvent.
4. Intention: The intention of both parties to contract must be similar and clear from any
influences. As per Brownsword (2000), it is one of the most important requirements

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of a legal contract to enforce the terms of the contract upon the parties to such
contract.
5. Certainty: The terms of a legal contract must be fixed in order to make it legally
binding upon the parties. The ambiguous or unclear terms of the contract cannot be
legally binding upon the parties of contract (Applebey, 2001).
Answer 2.
In order to enforce a legal contract, it is not necessary that the contract must be in
written form. A contract can be legally binding if certain conditions get fulfilled such as there
must be an offer and such offer must be accepted by another party without any new terms or
conditions. The parties of the contract are capable to enter into a legal contract and there must
be a legal consideration available for performance or non-performance of certain tasks. Both
parties must have a similar intention of legally entering into the contract and the terms of the
contract must be fixed. As per Solan (2001), a legal contract can either be written or oral, as
per the requirements of the parties. Both contracts, either oral or written is equally
enforceable under the law; the court did not distinguish upon the format of a legal contract,
except for formal contract. The oral contracts are tough to enforce due to lack of evidence for
proving their legitimacy. The parties of an oral contract can get into an argument regarding
the terms of the contract. Due to the lack of evidence, it is tough for the court to force terms
of the contract upon parties.
This is a significant drawback for parties while entering into an oral contract. While
ascertaining the legitimacy of oral contract, the court analyses different pieces of evidence
provided by both parties to support their claim, therefore, eventually, the terms of an oral
contract can change according to the order of the court. As per the written contract, the terms
cannot be changed by the parties without the approval of another party since the terms are
written. The court can easily bind parties upon the terms of a written agreement. The parties
of a contract can avoid any vagueness in the terms of contract if the terms are written
properly in a contract (Nolo 2006).
A written agreement is better than oral agreement since, in a long period of time, the
parties of contract can forget about the terms of the contract, therefore, written contract
ensures the proper implementation of contract terms. A written contract has several benefits
over an oral contact, such as a written contract reduces the chances of conflicts at the time of
enforcement of the contract. In case of daily business activities, such as selling or providing

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goods on credit, a written contract is significantly better than oral contracts, thus, it is a good
idea for businesses to enter into a written agreement rather than oral contract (Zink, 2013).
Answer 3.
Formal contracts are such contracts which require implementation of particular
regulations, in order to legally enforce them over the parties of the contract. A formal
contract is required to be formed in a particular format and written as prescribed by the law,
to enforce it legally. The writing style and particular format of a formal contract are provided
by law. It necessary that all such guidelines are meets while making a formal contract. A
formal contract does not require a consideration to bind upon the parties. Consideration is not
the essential requirement of a formal contract. Another requirement of a formal contract
includes fulfillment of contract requirements within twelve months. A formal contract is of
two types:
 Contract of Record: The contract of record is the contracts which can be legally
enforceable by the court without the consent or approval of parties of the contract.
One of the essential requirements of a contract to be legally enforceable is the
intention of both parties, but in case of a contract of record, the intention of parties is
not required. The contract of record includes decree or award issued by a court in a
certain case. The decision or judgment of the court is enforceable by law, which does
not require the intention of parties. Another example is summoning of a person to
perform a certain task or giving his presence in the court for the proceeding of a
certain case (Lui 2009).
 Contract under Seal or Contract by Deed: For the legal enforcement of a contract
under seal, the contract must be formed under a prescribed format by law. The
contract by deed required signature and attestation of a witness, the witness is the
third person who is not the party of such contract. It is necessary to attest the contract
by putting a seal on it and such seal authenticates the terms of the contract. The seal of
contract can be recognised as the consideration for a contract under seal. The
examples of the contract of deed or contract under seal include lease agreement or
debt taken from banks (Ryall & Sampson 2009).
Answer 4.

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The intention of parties is significantly necessary while making a contract which is
missing in social or domestic agreements, therefore, such arrangements cannot be enforceable
by law. But, in the given case, the parties have an intention of legally bounding another party
due to the availability of consideration. Each member gives their contribution with a common
intention of purchasing the lottery ticket. This contribution is evidence of the intention of
parties to form a legal contract, and each member of such contract has legally bound
themselves to certain rights and responsibilities as per the terms of such contract (Bohnet,
Frey & Huck, 2001).
There are several other cases in which court has given the same judgement. The court
decided that an agreement happened between three friends when one of such friend agreed to
buy an entry ticket for the other two friends. The contract between the friends was considered
as legally enforceable after one friend wins the award. The court provided that prize must be
distributed among all the friends because there was a legal contract between such friends
(Trevey, 1981). In another similar case, the court provides similar judgement where two
friends did not do anything to buy lottery tickets but both of them has the intention to attach
to a legal contract. The court takes the television interview and radio interview as an evidence
for the involvement of friends into an oral binding contract (Simpkins, 1995) (Chloros, 1960).
It can be concluded from the above observations that similar principles apply in this
case as well. The people contributed money to buy the lottery ticket has entered into a legal
contract which can be enforced by the court. The person purchased the lottery ticket is liable
to share such prize with other contributors. The money contributed by other peoples shall be
considered as the consideration for the contract. Therefore, the person who purchased the
lottery ticket is liable to share the winning prize with other parties of the contract.
Answer 6.
The regulation of vicarious liability includes different types of relationships, as per the
law of Torts. One of such relationship includes the association of principal and agent.
According to Milner (2006), the principle of vicarious liability legally enforced the principal
to the actions of his agent because the work of an agent is completely controlled by the
principal. There is a significant difference between the relationship of principal and agent to
the relationship of employer and independent contractor.

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As per Peden (2001), the right and liabilities of an independent contractor are provided
under Independent Contractors Act, 2006, in Australia. The rights of independent contractor
protected under Fair Work Act, 2009 (Australia, 2009). The legislative significance of an
independent contractor is considerably different from an agent. In the eyes of law, an
independent contractor and agent are completely different from one another. An independent
contractor provides his services to another party by entering into a legal contract with him.
An agent has a legal contract of service with his principal. In case of a contract of
service, a person legally binds himself to provide services to such person, which is the basic
difference between independent contractor and agent. An agent’s work is completely
controlled by his employer; therefore, the principal is legally responsible for the acts of his
agent. In case of an independent contractor, the contractor is completely independent of the
control of the employer (Hall, 2006).
The terms and conditions of independent contractor’s work are established by the
contractor itself. The employer has right to select the job but the method of performing such
job cannot be determined by the employer, which is not the case in an agent-principal
relationship. The employer of an independent contractor is not vicariously liable for the
negligence of the contractor since the contractor works “for” the employer (Atiyah, 1967).
An agent can only work for one principal whereas an independent contractor can work for the
different employer at the same time. An agent performs various tasks on his principal’s
behalf; on the other hand, an independent contractor is hired to perform a particular task only.

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References
Applebey, G. (2001). Contract law. Sweet & Maxwell.
Atiyah, P. S. (1967). Vicarious liability in the Law of Torts. Butterworths.
Australia, F. W. (2009). Fair Work Act 2009.
Bohnet, I., Frey, B. S., & Huck, S. (2001). More order with less law: On contract
enforcement, trust, and crowding. American political science review, 95(1), 131-144.
Brownsword, R. (2000). Contract law: themes for the twenty-first century. Lexis Pub.
Bruce, J. (2014). What is the Requirement of Common Law Legality in a Contract?. MCNA.
Retrieved from < https://mcna.com.au/requirement-common-law-legality-contract/ >
Carter, J. W., Harland, D. J., & Lindgren, K. E. (1996). Contract law in Australia. MICHIE.
Chloros, A. G. (1960). The Intention To Create Legal Relations. The Modern Law
Review, 23(3), 331-334.
Hall, R. (2006). Australian industrial relations in 2005-The WorkChoices revolution. Journal
of Industrial Relations, 48(3), 291-303.
McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press
(UK).
Milner, H. V. (2006). Why multilateralism? Foreign aid and domestic principal-agent
problems. Delegation and agency in international organizations, 107.
Nolo. (2006). What Makes A Contract Valid?. Forbes. Retrieved from <
https://www.forbes.com/2006/11/20/smallbusiness-statelaw-gifts-ent-law-
cx_nl_1120contracts.html >
Peden, E. (2001). Incorporating terms of good faith in contract law in Australia. Sydney L.
Rev., 23, 222.
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.

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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.
Zink, T. J. (2013). Written vs. Oral Contracts: Why You Should Get It In Writing. Omni Law
Group. Retrieved from < http://www.omnilawgroup.com/blog/written-vs-oral-
contracts-why-you-should-get-it-in-writing/ >
Cases
Simpkins v Pays (1955) 1 WLR 975.
Trevey v Grubb (1982) 44 ALR 20.