Essential Ingredients For Forming A Legally Binding Contract And Differences Between An Independent Contractor And An Agent

Agreement is the first requirement to form a legally binding contract

Question:

Discuss About The Independent Contractors Employees Retrieve?

The contract law of Australia has been adopted from the corresponding law of England with some modifications and developments. Under the Australia contract law the essential ingredients to form a valid contract enforceable in the courts of law are identical to those which are basically required in other accounting. The essentials required to form a contract are as follows:

Agreement is the first requirement to form a legally binding contract. An agreement is formed when an offer or a proposal is made by one person by expressing his willingness to another to do or not to do a certain act with an intention and in order to get an acceptance from that other person to whom such an offer is made. The person making the offer is called an offeror while the person to whom the offer is made is called an offeree. When the offeree accepts to act according to the willingness of the offeror, an agreement is said to have come into existence. Such an agreement may be for lawful or unlawful purpose (Treitel, 2003)

One of the most essential ingredient to form a legally binding contract is consideration. Consideration is anything which is given in lieu of the promise of act or omission. An management is incomplete without consideration having been attached to it. A lawful consideration shall be attached to an agreement to make it legally enforceable. A consideration may be anything which has monetary value (Treitel, 2003).

The term capacity means the capability of a person to enter into a contract. The law prohibits certain persons from entering into a contract for the reason that they are incapable of understanding the legal consequences of the contract. Under law a person who is of sound mind and has attained the age of majority as required under the law by which he is governed and has not been prohibited under any law from entering into a contract may become party to a legally binding contract (Treitel, 2003).

For the purpose of entering into a legally binding contract the most essential ingredient is an intention to enter into legal relations and to bind each other with the rights and obligations attached to the contract (Treitel, 2003).

The term certainty implies that the terms of the contract shall be certain and not ambiguous so as to make the contract void. An ambiguous contract will make the contract void (Treitel, 2003).

Consideration is anything which is given in lieu of the promise of act or omission

A contract, in order to be legally enforceable, is not required to be put into a written form. The essential requirements to make a contract legally binding are offer and acceptance, consideration, capacity of the parties, intention to enter into legal relations and certainty of the terms of the contract (Nolo, 2006). A contract can be made orally or in writing as per the desire of the parties to the contract. An exception to the rule is formal contracts (Bruce, 2014). Both the types of contract, i.e., oral and written contracts, are equally binding without any discrimination. Both the types of contract are equally enforceable in the courts of law. The oral contracts are a bit complex to get enforced for the reason that at the time of giving the evidences with regard to the oral contracts the parties to an oral contract may come into conflict with each other in the lack of written evidences of the terms of contract. This is the only disadvantage of making an oral contract. The parties at the time of producing the evidences and the court at the time of analyzing them may find vagueness in the terms of an oral contract. This is not the case with a written contract as the terms of the contract are in written form and there is minimum probability of any ambiguity to arise. Therefore it is a good idea to put a contract into a written form so as to avoid any kind of ambiguity or vagueness with regard to the terms of the contract and thereby to diminish the chances of conflicts which may arise between the parties at the time of enforcing the contract. Another reason for making a written contract is that the parties at times also forget the negotiations and terms of the contract due to the reason of a longer span of time between the making of the contract and its enforceability. This factor also induces parties to prefer a written contract instead of an oral one. In cases of day-to-day dealing of a business or any transfer of property, it is always preferable to make a written contract (Stock, 2013).

A formal contract is a contract which requires certain formalities to be fulfilled in order to make such contracts legally enforceable. Such contracts are required, by law, to be made in a formal style by following a certain manner of writing it. Therefore, a formal contract has to be essentially in a written form so as to make it legally binding. A formal contract will be valid only if it is formed in the manner required under the law. Further, in order to make such a contract valid, it does not require a consideration to be attached to it as an essential ingredient. The formal contracts may be enforceable within a period of twelve years from the date of its making (Lui, 2009). There are two types of formal contracts:

• Contracts of record; and
• Contracts under seal or contracts by deed.

The term capacity means the capability of a person to enter into a contract

The first category of formal contracts that is the contracts of record are those contracts which do not require the intention or consent of the parties in order to be enforceable by law. Intention is an important ingredient to make a valid contract enforceable in the courts of law but in case of a contract of record intention of the parties is not required for the reason that the existence of such contracts may be proved by producing a record of a court. The examples of a contract of record are judgments given by the courts upon conclusion of legal proceedings or a bond filled with the court for maintaining peace or good behavior or for appearing in the court as and when required (Lui, 2009).

The second category of formal contracts are the contracts under seal or contracts by deed. These category of contracts become enforceable and binding only if they have been made in the required format. Such contracts require signature and attestation by a witness who shall not be a party to the contract which he is attesting. The attestation of the contract by putting a seal upon it itself gives authentication to the document of the contract. As per law, a contract under seal is considered to be a good consideration for the purpose of contract. Some examples of a contract under seal or contract by deed are loan agreements or automobile leases(Lui, 2009).

Social or domestic arrangements do not have legal significances as the parties, at the time of making the contract, do not have intention to make each other bound by law and hence these agreements are not enforceable in the courts of law. But, here, in the instant case the parties had intention of making each other legally bound as there was involvement of money consideration. When each party contributed an amount to buy the lottery ticket with a common intention to win the prize and share it in proportion of their contribution. Therefore the parties are said to have an intention to make a legally binding contract and to bind themselves with the rights and obligations attached to the terms of the contract. The courts have also made similar observations in different cases. In a case where a person who made application to buy an entry coupon for himself and two of his friends and won the prize the high court laid down that the contract was a valid contract and therefore enforceable in the courts of law. The court held that the parties had intention to bind each other legally as they were contributing a sum to buy a coupon with an intention to win the prize. Therefore, the prize has been won by all of them and every partner has a right to share the prize in the proportion of the contribution made by them to buy the coupon (Trevey v Grubb, 1982). Also in another case the court held the same opinion with regard to the buying of lottery ticket. In this case the court held that although the two other persons were not making regular contribution to buy the lottery ticket they still had intention to bound themselves in a legal contract. Therefore they have right to share the winning prize in the proportion of the contributions made by them to buy the lottery ticket (Simkins v Pays, 1955).

For the purpose of entering into a legally binding contract the most essential ingredient is an intention to enter into legal relations

As per the observations made by the courts in above cases can be applied in the instant case that a person who buys a lottery ticket from an amount where contribution has been made by other persons too then the former is liable to share the lottery prize that has been won with the other persons also. Such a contract is purely legal and enforceable as the parties contribute money in the form of consideration to win the prize. Therefore, the purchaser of the ticket is bound to share the lottery prize with his friends.

Under the law of torts, the principle of vicarious liability involves various kinds of relationships. One among such relationship is that of a principal and agent. According to the rule of vicarious liability a principal is bound by the acts of his agent as the agent works under his complete control. It is important here to distinguish the relationship of that of a principal and agent from that of an employer and an independent contractor.

In Australia, the rights of an independent contractor have been protected under the Independent Contractors Act of 2006 and Fair Work Act of 2009 (Legal Service Commission of South Australia. 2016). The legal significance of an independent contractor are different from that of an agent. Under law there are a number of differences in an agent and an independent contractor. An independent operations is a person who enters into contract for providing services to another person as distinguished from an agent who is in contract of service with his principal. The basic difference in the two types of contracts is that in a contract of service a person binds himself to another to provide services only to the latter like in case of that of a principal and agent (Ministry of Manpower, 2017). The agent works under the complete control of his employer or on his behalf. This makes the principal bound by the acts of his agent in cases of negligence committed by the latter. On the other hand, in a contract for service the independent contractor, as the name suggests, works independent from the control of his employer (Queensland Government, 2016). The former works on his own terms and conditions and is not bound by the words of the employer. The employer can only suggest what work he wants and not the method to do that work as is the case in that of a principal agent relationship. The employer is not vicariously liable for any damage to a third party resulting from the negligence of the independent contractor as the latter is working ‘for’ the former and not on his ‘behalf’(Australian Government, 2016). Further an agent can work only for one principal at a time while an independent contractor can make a number of contracts with different persons at the same time for and can provide services to them simultaneously. Also the agent is employed to do all the works on behalf of his principal while the independent contractor contracts to perform a single task for his employer (Australian Government. (n.d.)).

Reference List:

Australian Government. (n.d.). Independent contractrors and employees. Retrieved from: <https://www.fairwork.gov.au/how-we-will-help/templates-and-guides/fact-sheets/rights-and-obligations/independent-contractors-and-employees>.

Australian Government. (2016). Laws affecting contracts. Retrieved from: <https://www.business.gov.au/info/plan-and-start/start-your-business/independent-contractors/understanding-contracts/laws-affecting-contracts>.

Bruce, J. (2014). What is the Requirement of business Law Legality in a Contract?. MCNA. Retrieved from < https://mcna.com.au/requirement-common-law-legality-contract/>

Legal Service Commission of South Australia. (2016). Employees and independent contractors. Retrieved from: < https://www.lawhandbook.sa.gov.au/ch18s02.php>.

Lui, S. S. (2009). The roles of competence trust, formal contract, and time horizon in interorganizational learning. Organization Studies, 30(4), 333-353. Retrieved from:
<https://www.business.gov.au/info/plan-and-start/start-your-business/independent-contractors/understanding-contracts/types-of-contracts>

Ministry of Manpower. (2017). Contract of service. Retrieved from: <https://www.mom.gov.sg/employment-practices/contract-of-service>

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>

Queensland Government. (2016). Step 4 contract of services versus contract for service. Retrieved from: <https://www.worksafe.qld.gov.au/insurance/which-insurance-product-is-right-for-you/accident-insurance/who-should-i-cover/worker-determination-from-1-July-2013/contract-of-services-v-contract-for-service>.

Simkins v Pays (1955)1 WLR 975.

Stock, H. (2013). When Is A Contract Legally Binding?. Harold Stock & Co. Retrieved from < https://www.haroldstock.com/contracts/contract-legally-binding/ >

Trevey v Grubb (1982) 44 ALR 20.

Treitel, G. H. (2003). The law of contract. Sweet & Maxwell.