眾律國際法律事務所

There are three questions to be asked before looking into whether a person may recover the amounts claimed or any part thereof in the contract. They are: the nature of the contract, the nature of the obligations; and the degree of performance which was rendered.

There are two types of contract when it comes to the nature of contract. They are divisible contract and lump sum contract. A divisible contract is one for which the consideration is apportioned according to the work to be done. One contract would be divided between the performance of work and the payment of consideration expressly.[1] A lump sum contract is one which provides for payment of specified sum on completion of specific work.[2] When the court look at the performing party’s whole obligations under the contract, the court would see whether the performance rendered satisfies the requirements of the contract as a whole. Nevertheless if a party who partially performs a lump sum contract will not be entitled to the contract price when it comes to damages and claim. They may however be entitled to damages or quantum meruit in some circumstances.[3]

It is important to look at the nature of obligation when it is not a divisible contract. The parties’ obligations under the contract can either be entire or non-entire. If obligation is entire, the contract will only be payable in exchange for exact performance for which the contract would be performed exactly according to the contract terms. If the contract however is not entire, the party will be entitled to claim the contract price in exchange for substantial performance of the contract.

When you wish to recover money from contract breaches, you would also need to look at the degree of performance. You would need to know whether the performance required by the contract rendered sufficiently in accordance with the contract so as to entitle that party to payment of the contract price either for the whole of the contract or the relevant divisible parts. Contractual party wishing to recover the price may have performed the contract exactly, substantially, or only in a partial way.

If there is exact performance, you can cover the whole contract price. If however a contract or part of a divisible contract is substantially performed, the party will be entitled to the contract price less an amount for rectifying the defects in the performance.[4] A party will be considered to have substantially performed a contract where such the defects in the goods or services are of a minor nature. The court would look into the nature of the defects and the relative costs of rectifying the defect compare to the contract price.[5]

There are two alternative remedies when it comes to partial performance. The first is for the party who has undertaken work or has provided services or goods to seek damages for the breach of the other party. Another option is to make a claim in quantum meruit, meaning reasonable value of services performed by the party. Quantum meruit is a claim in restitution for the return of a benefit provided to the other party. This is especially the case when a party performs a valuable service for another party in a written contract or agreement before performing the service. The purpose of quantum meruit is to prevent unjust enrichment of the other party. Quantum meruit can be used in situations where there is no contract existence or where a contract does exist but for some reasons which is not enforceable. A court may measure how much the other party (the defendant) has benefited from the transaction or performance and to determine how much the party (the plaintiff) has expended in materials and services.                                                                                                                                                                                                                                                                                                                                                             

When ending a contract, there are always questions regarding to contract termination. There are circumstances where an innocent party will be able to terminate a contract in the following situations:

I. In order to validly terminate a contract, terminating party must show either test of essentiality, proving that one party would not have entered the contract unless he/she assured of a strict or substantial performance of the term and the other party knows or ought to know such contract term.[1]

II. There is sufficiently serious breach of an inessential term.[2]

III. Repudiation by the other party to the contract, either express, implied or by conduct that indicates a refusal to perform the contract.[3] This is where the other party indicated clearly an inability to perform.[4] Nevertheless, such inability or refusal to perform must relate to the contract as a whole, or to an essential term of the contract.[5]

Prior to discharge by termination, you need to systematically apply whether each breach was essential or inessential or repudiation. It is also important to consider if time of essence and the prerequisite of termination.

If there is an anticipatory breach of contract, to be able to terminate the contract, the innocent party would only need to show that the other party were not wholly and finally disabled from performing the contract.[6] However such repudiation does not amount to anticipatory breach unless the innocent party seeks to terminate the contract.[7] Nevertheless, once the due date for performance arrives, all rights for the anticipatory breach would be gone.[8] Please note however a contract will not automatically terminate itself; it must be terminated by one of the parties.[9]

IV. Such contract can also be terminated by delay in performance of an agreement. This is where a party may be able to terminate the contract by breach of a term of the contract or for repudiation. If time is of essence, failure to perform in due time will be considered as breach of an essential term of the contract. This would allow an innocent party to terminate the contract accordingly. Nevertheless, the innocent party has the right to choose whether to terminate or to affirm the contract. If time is not of essence of the agreement, such termination is only possible where a notice making time of essence has been served to the party and the other party fails to comply with the notice.

There are a few questions to be considered whether such time is considered as essential in the contract. Timely performance will be of essence where the surrounding circumstances or subjects make it imperative that the agreed dated being precisely observed.[10]

In circumstances when it comes to land contract, payment of deposit would be considered as prima facie essential due to its special characteristics as an earnest of performance.[11] Therefore failure to pay such deposit would be considered as a breach of an essential term entitling the innocent party to terminate the contract.

If such time is not considered as essential, failure to perform will merely be a breach of an inessential term of the contract. Before an innocent party can terminate the contract, they must serve a notice to complete on the party in breach. Such notice should provide the other party in breach reasonable time to perform the obligations before the innocent party is able to terminate the contract.

A contract would not be considered as legally binding unless both parties agreed to be determined objectively with a reasonable degree of certainty.[1] Therefore if the terms are sufficiently certain, agreements to agree can be enforceable.

In circumstances where a contract containing language that is incapable of giving any definite or precise meaning and the court is unable to attribute to the parties any contractual intention in the eyes of law, will be deemed unenforceable.[2] When there is one or more terms considered uncertain or ambiguous, the court will do its utmost to hold an agreement[3] and to adopt reasonableness principle to interpret uncertain clause.[4]

If such term can link to external standard where there is a term that first appears to be uncertain, parties may provide for external references made directly or indirectly (relying on an original/previous contract to determine the meaning of the terms) to interpret meaning of the term.[5] Nevertheless such contract can only compromise one uncertain term. The invalidity of one term of the contract would not necessary void the whole contract.[6] However, if such uncertain clause forms a vital part of the contract, severance to comprise one uncertain term would not apply.[7] Such severance would only apply if the remainder of the uncertain or meaningless clause, after severance of that ambiguous term, reflects the intention of the parties.[8] On the other hand, if the parties have not agreed on all of the essential terms of the agreement, regardless of whether the language contained was considered uncertain or ambiguous, the contract will be deemed unenforceable.[9] Both parties must reach final agreement on all essential parts of the contract to make the contract legally binding. Lastly, if a contract contained an illusory promise to where one party would not carry out his or her obligations, such contract will be deemed unenforceable.[10]  

To create a contract, there must be an intention to create legal relations for both parties to enter into legal obligations.[11] Factors to be considered whether there is an intention to create legal relations include: status of both parties, subject matter of agreement, language used, parties’ relationship to one another, context of agreement and subsequent conduct. The legal test to see whether the parties intended to create legal relations is objective. The court would look at whether a reasonable person would regard the agreement as legally binding instead of looking at the minds of the parties.[12]

Nevertheless if such negotiation occurred in a business setting, it would be presumed that parties intended the agreement to have legal consequences.[13] In the case of Esso Petroleum Ltd v Commissioners of Customs and Excise, is one example that negotiation took place in a business setting and such promotion was to offer the coins in exchange to purchase petrol despite the small intrinsic value of the coins. When an agreement is entered in a commercial context, a heavy onus will shift to the party denying the existence of the contract to prove that there was no legal intention when making such offer.[14]

Consideration is an act of promise of an act and there often involves a price paid for the other’s promise.[15] Such consideration must be sufficient for ‘something that is valuable in the eyes of the law’[16] and be moved from the promisee.[17] However such consideration would not need to move to the promisor, it would be considered sufficient if consideration moves to a third party at the direction of the promisor. When there are joint promises, there only need one of the parties on behalf of all to move such consideration to the promisor.[18]

Termination of an offer can be divided into five categories: withdrawal by offeror, rejection by offeree, lapse of time, failure of a condition subject to which the offer was made and by death.

An offer can be withdrawn at any time prior acceptance[1], this is even the case where the offeror has promised to keep the offer open for a period of time (except the offeree has provided consideration in the eyes of law). Please keep in mind that revocation of an offer is only effective to be communicated to and received by the offeree.[2] Such revocation can also be withdrawn by a third party, provided such withdrawn are from a reliable source.[3] If the offeror wishes to withdraw offer to world at large, the offeror should use the same method as they did to advertise the offer to make such withdrawn to be valid. On the other hand, in unilateral contracts, such offer may not be withdrawn after the promise has begun to perform the necessary condition to fulfill the contract.[4] Nevertheless in the case of Mobil Oil Australia Ltd v Lyndel Nominees Pty Ltd[5] indicates that this legal principal is not clear as there is no clear expression made by the Federal Court that an offeror could not be revoked after acceptance had commenced.

The other type of revocation is rejection by offeree. Once the offeree rejects, such offer would be terminated and cannot be accepted at later stage.[6] Nevertheless, such rejection must be made to the offeror for such rejection to be effective. Mere request for information or to clarity certain terms would not be considered as a rejection of the original offer.[7]

For lapse of time, the offeror can illustrate a time for such offer to be valid, for which the offer will lapse within a reasonable time after the offer has been made.[8] Such offer can also be expressly or impliedly subject to conditions, failure of a condition for which the offer was made, the offer will cease accordingly.[9] Nevertheless, effect of death by one of the parties before acceptance of the offer is not entirely settled. The outcome may differ depending whether it is the offeror or offeree who has passed away. There are also some other factors to be considered such as: intention of the parties, subject matter of the contract and whether such offer was granted with an option. If during the offer, such offer was made in the condition that such offer is to be made and could be accepted notwithstanding the death of the offoror or offerree, such agreement can still be possibly made. However if such offer is to do with personal services, agreement can never be possibly made as the parties could not have intended to exercise such agreement following death.

Acceptance can be any forms of expression, by words or conduct, of the assent to the terms of the offer in the manner prescribed or illustrated by the offer. Nevertheless, a person cannot accept an offer for which has not been communicated.[10] There are two elements that must be fulfilled for an acceptance to be valid. Offeree must intend to accept the offer and the intention to accept must also be communicated to the offeror. This is the case where offeree must aware, having knowledge of, and act in reliance on the offer.[11] However if a person intended to accept an offer but introduces new terms which wasn’t included in the offer, would only be considered as a counter-offer of his or her own and won’t be considered as a valid contract.[12]

There are in total three elements of a simple binding contract in common law countries. They are:

• Agreement (offer and acceptance)
• Intention to crate legal relations; and
• Consideration

A valid agreement is based on offer and acceptance which can exist between two or more parties. Nevertheless, it may be necessary to look at the whole of the relationship, including the communication between the parties, together with their conduct, to determine whether there has been a valid agreement.[1]

Offer:

Offer here is considered as an expression of their willingness to be legally bound by the stated terms.[2] In the case of Australian Woollen Mills Pty. Ltd. v. The Commonwealth[3], is considered as a leading case regarding to what constitutes as a legally binding offer. There are three elements for an offer to be legally binding. Include:

1. Statement made to another person that it must be made to another legal entity.

2. Offeror indicates that a preparedness to be legally binding to where offeror must be prepared to be legally bound if the offer is accepted by the offeree.

3. Such statement made by the offeror must contain in stated terms, including any kinds of formal document, verbal statements, emails and any other means of communication.

However there are some circumstances where such offer won’t constitute as a legally binding offer. This is especially the case where some features akin to a valid offer, however in reality, it is something less.

Mere puff for example, to where the claims are made for advertising purposes won’t be considered as a legally binding offer. Such offer would ‘mean nothing’ in the eyes of law. There are a few reasons behind this. Such offer may be offered to public at large that the offer is not made to any person in particular.[4] Also offers made through internet is another offer made to the public at large.[5] Mere supplying of information is another example that won’t be considered as a valid offer either. Usually enquiries are made to other parties for such information to be exchanged. Therefore it is difficult to determine whether the response is just a response or an actual agreement to formulate a contract. Invitation to treat wont’ also be considered as a valid offer. Invitation to treat is often considered as a technique used by a person who wants another person(s) to make an offer. Usually this is in the circumstances that both parties are still negotiating the terms of the contract. Therefore it falls short of a valid offer.

Acceptance: