Contracts - More Information
Questions and Answers
Introduction
The answers to some frequently asked questions on forming contracts are listed below. Should you require any further information, please do not hesitate to contact one of Snedden Hall & Gallop’s experienced commercial law experts.
Q: Does a contract have to be in writing?
A: There are many types of contracts that can be made orally, however, they are often difficult to enforce. The most common types of contract that must be in writing in order to be enforceable are promises related to land interests, and promises to pay the debt of another.
Q: When is a contract formed?
A: A contract is formed when one party has made an offer and it has been accepted, and all terms agreed to, by another.
When an offer is accepted, the accepting party does not need to accept all the terms of the initial offer and may make a counter offer on some of the terms. Once all the material terms of the deal have been agreed, either expressly or by reasonable implication, the contract is formed.
Q: What if I change my mind?
A: As long as nothing has been paid or given up to hold an offer open, the offer can be withdrawn at any time before it is accepted.
Q: What is ‘consideration’?
A: In order for a contract to be binding, there must be bargaining for something of value. The value can be a tangible thing or an intangible advantage (e.g. in consideration of your paying me $500,000, I will sell you my house, or, in consideration of your paying my medical bills, I will discontinue my legal proceedings against you). The underlying value upon which the contract is based is called consideration.
Q: What is a breach of contract?
A: A breach of contract occurs when a party to the contract fails to perform a specified duty under the contract. Following a breach, the non-breaching party can usually seek some sort of legal or equitable remedy.
Q: How are damages calculated for the breach of a contract?
A: Damages largely depend on the type of breach. If the wronged party has not sustained provable damages (eg. loss of profits from business), the party can normally only claim for nominal damages can be proved, compensatory damages are usually awarded. Compensatory damages aim to restore the position in which the wronged party would have been if the contract had been properly performed (i.e., the non-breaching party is paid the amount of the loss only).. Nominal damages are usually a small amount that is paid to recognise that the wronged party’s rights have been breached but no substantial loss has been suffered. If the breach caused losses that
Q: How old must you be to form a valid contract?
A: In most states and territories in Australia, you must be an adult to form a valid contract. A person is considered to be an adult (or to have reached his or her age of majority) at the age of 18.
Q: Apart from age, is there any other restriction on who can enter into a binding contract?
A: Generally, a person must have contractual competency. A contract may be voidable if one party, because of mental illness or impaired intellectual ability, is either unable to understand the transaction, or incapable of reasonably fulfilling his or her responsibilities under the contract.