Common Law Contracts

Contracts exist in almost every aspect of our lives. Many common law contracts are formed without any paperwork being completed. If you purchase food, you are entering into a contract with the supplier of that food. If you ride a bus, you are entering into a contract with the company or organisation that owns the bus.

There are also contracts that apply in our everyday lives which usually come in the form of a written agreement. If you lease a house, you enter into a written agreement with the landlord before gaining entry to the property. If you are employed in a workplace, you will most likely have signed an employment agreement with your employer before starting work. If you are a member of a gym, you most likely signed a contract about your membership before gaining entry to start working out.

All contracts are subject to the common law of contract regardless as to whether they are in a written form or not. In addition, contracts that relate to specific areas of life may also be subject to legislation that governs that area. For example, there are various pieces of legislation that relate to landlord and tenants rights. Contracts that are subject to that legislation must be in compliance with it as well as in compliance with the common law of contract.

The common law of contract has been developed over a long period of time, and there are common law contract doctrines that have been developed about various things that can occur in the field of contract law. Some of these will be briefly considered here.

Elements of common law contracts

There are several required elements for a legally enforceable contract to exist according to the common law of contract. These elements are:

1. That an offer was made;
2. That the offer was accepted;
3. That there was consideration given (most commonly a monetary amount);
4. There was an intention to be bound by contract;
5. The parties agree on the same thing – mutuality;
6. The parties were legally capable of reaching an agreement – capacity; and
7. The subject matter of the contract was legal – legality.

Privity of contract

Essentially the common law contract doctrine of privity of contract means that only a party who was an original party to the contract can sue or be sued upon the terms of the contract.

Contents of common law contracts

Sometimes in a contract dispute relating to a common law contract, there may be a situation where a court needs to determine what exactly were the terms of the contract. In order to make a determination about this, the courts will generally do four things:

1. Determine what the parties said to one another and what they agreed with one another;
2. Determine whether the statements said between or among the parties were intended to be contractually binding;
3. Determine what level of importance was attached to the relevant statements; and
4. Devise an appropriate remedy in the event of any breach.

Mistake and common law contracts

A common law contract can be set aside where a court finds that one or more of the parties only entered into the contract because they misunderstood something that was fundamental to the agreement. In these situations, the courts consider that there was no true agreement or no true consent to the agreement.

Misrepresentation

Sometimes misrepresentations, if made during the course of negotiations for a common law contract, may give rise to a cause of action, if they come to light later after the agreement has been executed. Misrepresentations that give rise to a cause of action are called actionable misrepresentations. In general, a party alleging that an actionable misrepresentation has occurred must demonstrate four things:

1. That a statement was made that was false;
2. That the statement was one of fact;
3. That it was addressed to the party claiming that it was misled; and
4. That the intention of the misrepresentation was to induce the contract and that it, in fact, did induce the contract.

Duress, Undue Influence and Unconscionability

A common law contract can be deemed void, or other remedies may be available if it can be shown that there was some sort of duress placed on one of the parties to enter into the contract. Duress means that there was some sort of pressure placed on one party over another to force one party to act in a certain way. For duress to affect a common law contract, the duress must have been such that it would cause a reasonable person, exercising an ordinary degree of firmness, to do something which he or she would not otherwise do.

Undue influence can also cause a contract to be voided or open the gateway to other remedies for an aggrieved person. Generally, undue influence is a form of pressure that falls short of duress.

If it can be shown that a party acted unconscionably in the contract negotiation process, a common law contract may be rescinded. This means that the contract is set aside and the parties are restored to the positions they were in prior to entering into the contract.

Illegal and Void Common Law Contracts

A common law contract that is to do something illegal is not enforceable. The illegality of the contract does not have to be illegal criminally but can also be illegal according to civil law.

Discharging a Contract

Discharging a contract simply means bringing it to an end. Generally, there are five ways that this can be done:

1. By performance – all obligations under the contract are completed;
2. By agreement between the parties – the parties agree to end the contract;
3. Through frustration – performance of the contract becomes impossible;
4. Through breach – one party breaches the contract, and this ends the contract;
5. By operation of the law – a law is made which makes the contract illegal or causes it to be frustrated.

Remedies

Where there is a breach of a common law contract, there are several remedies available. What remedy is available depends on the type of breach. Some of the remedies available include:

1. An award of damages (monetary compensation);
2. Specific performance – an order of the court that one party performs their obligations under the contract;
3. Injunction – one of the parties to the contract can be prevented from doing something; and
4. Restitution – one party is required to restore something to the party from whom it was taken.

If you require legal advice or representation in any legal matter, please contact Armstrong Legal.

This article was written by Kathryn Sampias

Kathryn Sampias has a Bachelor of Laws, a Bachelor of Arts and a Graduate Diploma in Journalism. Kathryn was admitted to practice in 2005 and practised law for more than eight years, working both in private practice (mainly in defence litigation for professional indemnity disputes) and in the public service for the Australian Securities and Investments Commission (ASIC) in enforcement.

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