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:
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.
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).
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.
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:
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.
5. 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.
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.
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.
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