In Australia, a legally enforceable contract occurs when two or more parties enter into an agreement. Contracts are made for various purposes, such as buying and selling goods, providing services, or forming business partnerships.
A contract is a safety net for each party and is often referred to when disagreements come up. This is why it’s important to make sure it’s legally valid and enforceable from the beginning.
In this article, we will look at what makes a contract legally enforceable and the elements of a valid contract.
What Makes a Contract Legally Enforceable?
For a contract to be legally enforceable, it must be valid and correctly formed. The contract does not need to be in writing but it’s always a good idea to do so. Written contracts allow for better record-keeping, plus, they safeguard any evidence that may be required in the future.
Keep reading to learn more about what makes a contract valid.
How Do I Know if a Contract is Valid?
Before you claim for breach of contract, it must first be established whether the contract was legal and valid. For it to be valid, there are a number of factors that must be established.
1. An Offer Must be Made
The offer must be clear and set out the terms of the agreement.
For example, John offers to buy Sarah’s business for $200,000, subject to him obtaining finance first.
2. The Offer and Terms of the Offer Must Be Accepted
Acceptance must be clear and set out that the terms proposed are agreed as they are.
Acceptance can be communicated in writing or verbally but can also be communicated by way of conduct.
Sarah doesn’t respond to John to accept the offer but instead, presents him with a contract setting out the terms of John’s offer. This implies that those terms have been accepted.
3. Consideration Must Be Given
Each party must provide something of value in exchange for the promise of the other party. This can be money, services, goods, or even a promise to refrain from doing something.
4. The Parties Must Have Capacity to Enter into the Proposed Agreement
The parties entering into the contract must have the legal capacity to do so. They must be of legal age (usually 18 years old) and of sound mind.
Contracts made by minors or individuals under duress or coercion may be unenforceable.
5. The proposed contract is legal
The terms of the contract must not deviate from any relevant laws. Where a contract is inconsistent with a particular law, that law will often prevail which may result in the contract being voidable.
If you are still wondering whether or not a contract is valid, it may be best to speak with a litigation solicitor regarding the matter.
Examples of Enforceable Contracts
Legally enforceable contracts can exist verbally or in writing with express or implied terms that form the entire agreement. To give you a better understanding of what’s enforceable, we have included a few examples below.
Entering a Car Park
If you enter a car park after passing a sign with the terms and conditions listed on it, you are technically entering into an enforceable contract.
The simple act of entering this car park means you are entering into a contract with the car park’s operator. By choosing to park there, you agree to the terms and conditions provided for upon entry.
If you do not comply with the terms and conditions of the carpark, you may be breaching your obligations and certain rights may be limited to you as a result.
Employment Contracts
Contracts between an employer and employee outlining terms like job duties, pay, and conditions. These terms must comply with the Fair Work Act 2009 and other relevant laws or awards, but the general terms and conditions are usually somewhat the same.
If an agreement includes terms the employer asks for that can’t be enforced by law, it might cause issues with the entire agreement.
Residential Property Contracts of Sale
Contracts for the sale or purchase of property are among the most commonly known contracts. These typically involve detailed terms around price, conditions of sale, and settlement timelines and must be in writing as per the relevant sections of the Property Law Act 1974 (Qld).
These contracts usually go into detail about the rights of both the Buyer and Seller, including any penalties if either side doesn’t meet their responsibilities.
Examples of Contracts that are NOT Legally Enforceable
There are many ways in which a contract may be deemed unenforceable, particularly where the terms of the contract unfairly favour one party or simply lacks a legal basis to be enforceable. Here are a few examples of unenforceable contracts:
Contracts Made Without Intention to Create Legal Relations
Social or domestic agreements (e.g., promises between family members or friends) are usually considered unenforceable because there is typically no intention for the agreement to be legally binding.
There are exceptions to this. For example, where either party alleges that an agreement of some kind existed to form the basis of the promise (such as a loan between family members).
Contracts Lacking Consideration
A contract where one party does not provide something of value in return for the promise of the other party. In such cases, the contract lacks “consideration.”
Illegal Contracts
Contracts that involve illegal activities or require the performance of illegal acts are unenforceable. For example, an agreement to sell prohibited drugs or to pay someone for committing a crime cannot be enforced in court.
Contracts Made Under Duress or Undue Influence
If one party is coerced or pressured into entering a contract against their will, the contract may be deemed unenforceable.
What Constitutes a Breach of Contract?
Where parties enter into a contract, there is a fundamental need for the obligations of each party to be clear and understood. It is expected that, where a contract is enforceable and valid, the parties have agreed to it with full understanding and acceptance of their obligations.
This is particularly relevant where a party fails to meet an obligation under the agreement (i.e. they breach the contract) as the contract must act to protect the other party and, in some cases, punish the breaching party.
Generally, a breach will be considered where:
- The parties entered into a contract that is legally binding and enforceable; and
- The party alleging a breach of contract, has met their obligations set out in the agreement (i.e. they have ‘clean hands’); and
- The alleged breached party has not met one or more of their obligations; and
- The party alleging a breach of contract has suffered, or is likely to suffer, a loss and/or damage because of the breach; and
- There is evidence to substantiate the breach and loss.
It’s a good idea to get a solicitor involved from the start when making an agreement. This helps protect your rights and reduces the chance of the contract being considered unenforceable.
If you are unsure whether you have entered into a contract or believe you or another party may have breached an agreement, Greenhalgh Pickard’s dispute lawyers can help. Call our office today.
Disclaimer:
The information contained in this article is for general informational purposes only and is not intended to provide legal advice or substitute for the advice of a professional. This information does not consider your personal circumstances and may not reflect the most current legal developments. Should you need advice, please contact our firm for targeted information relating to personal your situation.
Greenhalgh Pickard’s Litigation Team
