What is a contract?

A contract is a legally binding agreement between two or more parties, made orally or in writing, that promises performance of specific tasks by those parties.

Determining what a contract is

If you consider that one party has breached a contract that you have with them, you must be able to prove that there was a legally binding contract made in the first place.

For a contract to be legally binding, it must have the following elements:

• An offer – one party promises to do, or not do, an action.
• Acceptance – in verbal or written form, or through performance of an action that is consistent with the terms of the contract.
• Intention – it must appear, to a reasonable observer, that both parties intended the agreement to be legally binding.
• Consideration – the value (typically money) that is given in return for the goods or services that are provided.
• Capacity – the individuals must have the ability to understand what entering into the contract means at the time of its formation.
• Legality – all terms of the contract must be legal.
• Fairness – under Australian Consumer Law, a contract must not contain unfair terms. Unfair terms are terms that unfairly disadvantage consumers, in a way that lacks good commercial reasoning.

A contract can be made in writing or verbally. While written and signed contracts minimise misunderstandings and produce a clear record – verbal (or otherwise) informal contracts are still contracts.

Do both sides always have obligations to fulfil? It depends. A contract can be bilateral, or unilateral. A bilateral contract is one in which both parties have obligations to another. For example, if you were to sell your car, your obligation would be to transfer ownership of your car, and the other party’s would be to pay you for the car.

In a unilateral contract, the contract is only completed when the offeree performs a task. For example, if someone puts out a “Missing Pet” poster, with a reward for finding the pet, there is no obligation for passersby to find the pet. It is only when a passerby does find the pet and returns it to the owner that the contract is completed.

Contract terms

There are two types of contract terms:

• Express terms – the express terms used in the formation of the contract.
• Implied terms – terms may be implied or included into a contract. For instance, it is assumed that both parties will follow the law and perform their services to an acceptable standard.

What is a breach of contract?

A breach of contract is where one party fails to carry out their obligations or follow the terms set out within the contract. Unsurprisingly, in order to commence proceedings for a breach of contract, a legitimate breach must be identified.

Depending on the severity of the breach, different remedies will be available to the innocent party.

Types of breaches

There are three main types of breaches that can occur, each of which will affect the non-breaching party’s options.

• Material breaches are major breaches of contract, where one party does not fulfill their obligations in a way that is fundamentally opposed to the nature of the contract. For instance, if you bought a new car and later discovered it was used or did not operate on arrival – this would be a material breach of contract. In this case, you would be able to terminate the contract, and/or claim remedies.
• Minor breaches are smaller violations of contract, which are non-essential to the purpose of the contract. These violations are minor or easily remedied. For instance, if you bought a car and the dealership did not include the manual, or the car was delivered a day late, that would constitute a minor breach. You may still claim damages in this case if there was harm, but you could not terminate the contract.
• Repudiatory breaches are when a party indicates that they are unable or unwilling to fulfil their side of the contract. For example, the person you have agreed to buy a car from may announce they no longer wish to sell the car, repeatedly delay delivery, or sell the car to a third party before transferring ownership to you. In this case, the contract can be immediately terminated, and you may be entitled to remedies depending on the circumstances.

Potential remedies

If you believe that there has been a violation of your contract, you may seek remedies. There are many forms this could take, including:

• Damages – monetary compensation for any loss suffered due to the breach.
• Specific performance – requiring the breaching party to perform their contractual obligation as agreed.
• Injunction – A court order that forbids the breaching party from taking a specific action.

Of course, the type of breach will dictate what remedies you could seek. You are not going to be able to obtain an injunction if a car dealer has supplied you a car that has no wheels. You could, however, obtain an order for damages or specific performance, requiring the car dealer to supply a car with wheels.

Need help?

If you consider that you have an issue in relation to a breach of contract, contact our experienced team and we will be able to assist you.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.