Private Investigators Geelong - Commercial Intelligence
Law Snapshots

Contract Law and Equity

Introduction

 

Contracts lie at the heart of all commerce. They involve promises on both sides where something of value is transferred between both parties subject to a clear and legitimate agreement. Courts rely on evidence of what the parties mutually intended to be bound by law to do. Contracts involve transferring things of value such as personal rights, money, property rights and promises of future obligations. Equity is a field of law which furnishes the lifeblood of a contract – A large part of Equity is comprised of rules requiring the fulfilment of what is promised or reasonably expected by counter-parties, and to act fairly towards them.

 

 

Contract law is a large part of the case law system and what follows here barely scrathes the surface - and Equity gets only occasional mention. Contracts are rarely the subject of an investigation involving outside parties; however many times investigators are called upon to investigate assets, interests and liabilities which came into being in at least one transaction – such as real estate, or an insurance contract. Therefore it is of interest for an investigator to understand the legal backdrop preceding their inquiries.

What makes a valid contract?

Contracts need certain ingredients to be legally valid and enforceable…

1) Informed agreement as to terms on both sides

2) Facts identifiable as offer and acceptance.

3) An intention on both sides to be legally bound.

4) Certainty of terms.

Forms of Agreement

A contract need NOT be in writing, or signed. You only need proof of the above 4 factors. A contract can be formed verbally, or implied by conduct. When in writing it does not have to be signed, only acted upon. However a written document with signatures is very good evidence of the terms.

Every time you buy or sell something, this is a contract in action. If buying over the counter, by taking an item of stock to the counter, the customer is making an offer to buy, and the taking of payment is the seller’s acceptance of that offer. In Pharmaceutical Society of Great Britain v Boots Cash Chemists,[1] a pharmacy in 1950’s Britain placed stock on shelves for customers to select independently as in a normal shop. The Pharmaceutical Society did not like this and sued. The court ruled that the display of goods for sale is not a contractual offer to sell, and picking an item up is not acceptance of the offer. The sale is effected when the sales staff accept the customer’s offer to buy at the agreed price.

Offer and Acceptance

To prove that a contract is valid there must be facts identifiable as an offer and as the acceptance of that offer. A mere ongoing relationship of trust and cooperation is not a contract. There needs to be a definite commencement to the contract with the recognition of rights and obligations evident. This is especially important when dealing with contracts implied by conduct.

Intention to be legally bound

The parties must mean what they are doing when entering a contract. An intention to cooperate when and how it is suitable is a very different thing to intending to be legally bound to the agreement. For this reason courts are very reluctant to find contracts in existence between family members. The more casual, optional or unpredictable the relationship between the parties, the less likely there is a real contract. A signed document setting out terms and damages for breach helps, but it is not all-sufficient.

Certainty of terms

Agreements must be specific, quantifiable and lawful – there must be no question as to what is on offer and what is required. When a court finds uncertainty it will try to keep the contract in action, but this is not always possible. A fundamentally flawed contract is declared void. Where a contract is declared void, everything that has changed hands is to be returned.

Estoppel

Estoppel is a rule of Equity which in its dominant application to contract law, operates like a contract where not all the common law formalities discussed above have been established. Like much of Equity, its primary function is  to avoid the unfairness that the Common law may impose due to its technicalities. Dealing with a common type of estoppel – promissory estoppel - where a party has acted in reliance on another’s promise, and it was reasonable to do so, but has suffered detriment due to the revocation of the promise, then they are entitled to a court order demanding the performance of the promise.

Terms and Parties

Interpreting and changing a contract

Contracts are interpreted with respect to the apparent intentions of the parties. When there is a written document, this is the pre-eminent evidence.  Where there is a lack of clarity or issues arising that are not covered in writing, then courts readily consider evidence of assumptions and verbal assertions, and common practice.

Re-negotiation

A party may want to change the terms of the contract. The agreement with the other party remains as is, unless re-negotiated lawfully. Classically this involves discussion and reaching mutual assent. However it is common for big businesses to impose new terms on customers unilaterally. The customer’s acceptance of the new terms will be implied by conduct as the customer continues to do business under them.

Termination

Parties can terminate a contract at will, within what is permitted by the contract terms, but they may owe damages in lieu of what the counter-party reasonably expected to receive or has expended in pursuit of their obligations.

When a party simply ceases performing their obligations under a contract, this called repudiation. Repudiation may be implied by a period of non-performance. It is allowed by law in response for a breach of an essential term, but not a minor term. Upon repudiation, if unjustified, the other party can then terminate the contract at will. They may sue for damages or for an equitable remedy called specific performance. Specific performance is a court-imposed obligation to carry out certain contractual obligations.

Vitiating Factors

Vitiation - Basics

Vitiation means to make a contract void. When a contract is said to be vitiated it is due to certain factors fundamental to its formation being absent or due to severe unfairness on persons with serious disadvantages. Vitiation arises from a group of rules that lie within Common law, Equity and the statutory Australian Consumer Law. When vitiated, the contract is terminated and all that has passed between the parties has to be returned.

Vitiating factors include…

  • Mistake as to terms

  • Abuse of power – including economic duress, undue influence and unconscionable dealing

  • Unconscionable conduct

  • Misleading and deceptive conduct

 

Unconscionable dealing relates to wrongful advantage being taken of a person who is intoxicated, intellectually disabled, of very young or very old age, or severely lacking in education. It is best to deal with their power of attorney or legal guardian rathe than the person themselves.

 

 

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