A contract is a binding agreement between two or more parties that sets out what each party must do and not do. Anyone over 18 can enter into a contract, and in some cases, someone under 18 can as well. Commercial relationships and transactions are generally regulated by contracts, including purchasing a car or a house and performing paid work. Not all contracts have to be in writing, though some types of contracts must be in a written form by law. If a party breaches a contract, another party can take action. In New South Wales, there are a number of remedies for a breach of contract.
What is a valid contract?
In order for a contract to exist three basic elements must be present. Firstly, there must be an agreement between the parties, where someone offers something, and the other accepts that offer. Secondly, each party must give something of value (called consideration). This may be money, goods or someone’s skills and labour. Thirdly, each party must have willingly entered into a legally binding agreement.
Breaches that repudiate the contract
Certain breaches will let the other party to the contract consider themselves free from their contractual obligations. However, they can keep the contract going and perform their obligations under it if they wish.
A party can also refuse to perform their part of the contract, resist any action brought by the defaulting party, and take action against the other party for damages resulting from the breach of contract or for an amount equivalent to the goods or services that were provided. This is called suing on quantum merit. In this situation, the law considers that the innocent party should receive something for the obligations they have performed.
Breaches that do not repudiate the contract
Some breaches by a party do not discharge the contract. This may be because the breach does not entitle the innocent party to end (or repudiate) the contract or because, although they are entitled to do so, the innocent party decides not to repudiate the contract. In such situations, the party that is not in default can do three things:
They can sue for specific performance. This is a court order specifically directing the party that is in default to carry out its contractual obligations, which is only available in cases where proper compensation for the breach of contract will not be provided by damages, such as in a contract for the sale of land. If the court cannot oversee the carrying out of the order, specific performance will not be granted.
The party can seek an injunction, which is a court order restraining a party from doing or repeating wrongful conduct. If there are court proceedings on foot, an injunction can also be granted where there is a real risk that a party may sell or otherwise deal with property that is the subject of the dispute.
They can sue for damages. An award of damages for breach compensates a party for losses resulting from the breach of contract. If no loss was sustained as a result of the breach, nominal damages may be awarded if a legal right has been infringed.
Damages
If a party has sustained a loss, it could be entitled to damages. The injured party should, so much as possible, be left in the same position as if the contract had been performed.
Damages are a monetary amount that may fairly and reasonably be considered to have resulted from the breach. A prospective loss can also be taken into account when assessing damages.
In some contracts, a formula for calculating a sum is set out in the contract as the amount payable in the event of a breach. Liquidated damages are the amount which the parties have agreed will compensate for a breach. If there is a breach, the court will award this amount as compensation, but if the amount is considered to be a penalty, it will not be recoverable.
In certain circ*mstances, a breach that leads to inconvenience and/or distress to the other party may be recoverable.
An aggrieved party to a contract must do everything possible to mitigate its losses, otherwise, it may not be able to claim the full amount of damage. Where no sum or formula is mentioned in the contract, the loss actually incurred will be awarded as damages by the court. If a party has not suffered an actual loss but has been affected by the infringement of a legal right, the court can award a small amount as nominal damages.
Getting out of a contract
If a court finds that the terms of a contract are unfair it can rule that the contract should not be strictly enforced. In this situation, it can vary or even void the contract.
The court will consider matters such as how equal the parties to the contract were and what scope they had to negotiate the terms and conditions.The Australian Consumer Lawalso sets out some behaviour that is unfair relating to buying and selling goods and services, such as misleading and deceptive conduct.
If you require legal advice or representation in any legal matter, please contact Armstrong Legal.
