When is an Agreement a Contract
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This document discusses the key differences between agreements and contracts. Agreements are generally not legally enforceable, while contracts are. For something to be a contract it must include an offer, acceptance, consideration, capacity to contract, and an intention to be legally bound. Contracts are used to manage risk and provide clear expectations, while agreements lack an intention for legal enforcement. The document provides guidance on when to use a contract versus an agreement and outlines important rules for contract construction and interpretation.
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When is an Agreement a Contract
- 1. Steve Brown WHAT MAKES AN AGREEMENT A CONTRACT
- 2. www.etiennelaw.com What Distinguishes Agreements and Contracts? Agreements are as a general rule:! Not legally enforceable ! Courts will not involve themselves! Contracts are ALWAYS:! Legally enforceable! Courts will enforce as the as the law dictates.
- 3. www.etiennelaw.com What Distinguishes Agreements and Contracts? Contracts MUST comprise:! An offer ! Acceptance of the offer! Consideration! Capacity to contract! An intention to be legally bound! Agreements MAY comprise:! An offer! Acceptance of the offer! Consideration! May have capacity to contract! Agreements ALWAYS lack an intention to be legally bound
- 4. www.etiennelaw.com How To Use A Contract In commerce contracts should be seen as:! Risk Management Tools! Checklist or Rule Books applying performance standards
- 5. www.etiennelaw.com How to Use a Contract As a Risk Management Tool Agreement to meet and discuss a form of long term supply arrangement! Contract to supply an apple! Contract or agreement to toll manufacture chemicals in Australia
- 6. www.etiennelaw.com How to use a contract as a checklist or rulebook Who is to do what - who is to supply goods or services; Who is paying for the goods or services! When are the services/good to be supplies; when are they to be paid for! How are the goods/services to be supplied! Consequences of good or poor performance
- 7. www.etiennelaw.com When To Use a Contract Instead of An Agreement Least Enforceable form - an Agreement to oral contract Most formal form of written contract Risk
- 8. www.etiennelaw.com Types of Formal Contracts Oral! Partly oral, Partly written - varied by phone! Written! Informal - exchange of letters or emails! Formal! Standard! Negotiated (one off)
- 9. www.etiennelaw.com Types & Forms of Contracts - Formalities Formalities - must contracts be in writing?! Privity of contract! Assignment of interests! Terms of a contract! express! implied! conditions! warranties
- 10. www.etiennelaw.com Types & Forms of Contracts - Formalities Understood within an industry! Legally interpreted (precedent)! Trust in project relationship! Familiarity in administration and making of claims! Dangerous with consumers if not fair TheCaseforStandard Forms
- 11. www.etiennelaw.com Types & Forms of Contracts - Formalities Needs of project! Non-traditional project strategy! “Minimal Risk” client! Specific checklist gives certainty of outcomes TheCaseforOne-off Contracts
- 12. www.etiennelaw.com Rules of Contract Construction The Objective to ascertain the mutual intentions of the parties! The Objective v Subjective! Objectivity! How determined! Object of Contract! Parties Words! Actions! Surrounding Circumstances
- 13. www.etiennelaw.com Rules of Contract Construction Mutual intentions of the parties of who is to do what, how and when ONLY from the words used in the contract! The intention of the parties as to what the words mean is irrelevant! Courts construe the objective intention of the parties not the parties actual intention
- 14. www.etiennelaw.com Rules of Contract Construction Business common sense is sometimes used in addition to the words chosen by the parties. Here the courts look at the purpose of the contract, whether the form of the contract was a standard form or negotiated by the parties, and the commercial experience of the judge who is to construe the meaning of the words used.! Where the words used are clear, the court must give effect to them even if they have no discernible commercial purpose.
- 15. www.etiennelaw.com Rules of Contract Construction Although not overtly recognised, courts sometime manipulate the construction of a contract to achieve a fair result on the facts as ascertained by the court! In construing a contract, clauses must not be considered in isolation but must be considered in the context of the whole of the contract! The words of a contract should be con trued in their grammatical and ordinary sense, except to the extent that some modification is necessary to avoid absurdity, inconsistency or repugnancy
- 16. www.etiennelaw.com Rules of Contract Construction The ordinary meaning of a word is its meaning in its plain, ordinary and popular sense, although that sense may be a sense among a particular group of persons! Where a contract contains technical terms the court may discover the meaning of those terms using a dictionary, or where the technical terms are in dispute the court may only proceed upon calling expert evidence as to what the terms mean
- 17. www.etiennelaw.com Rules of Contract Construction Special situations! Standard form contracts! Any special conditions are given greater weight to the standard conditions in the case of conflict! Implied Terms! Courts may imply terms where a contract is silent upon a point but only if all of the next 5 conditions are able to be satisfied! it is reasonable;! it is necessary to give business efficacy to the contract;! It is so obvious a term it goes without saying;! it is able to be expressed clearly;! it is not contrary to an express term.
- 18. www.etiennelaw.com Rules of Contract Construction Implied terms! Business efficacy! the Moorcock (1889)! Statute
- 19. www.etiennelaw.com To Use A Contract or Agreement Analyse the risks that the deal is designed to minimise! Analyse the rewards the deal is expected to return! Determine if you need certainty or need commercial flexibility! Determine if you can obtain a contract or have to use an agreement
- 20. For Further Information Contact! Steve Brown! 8845 2400 sbrown@etiennelaw.com It is not wrong to not always have a contract: PROVIDED the risk of there not being a contract is accepted. Call Etienne Lawyers today to establish if you need a contract.