Duty Of Good Faith Australian Contract Law

Duty Of Good Faith Australian Contract Law

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Duty Of Good Faith Australian Contract Law

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Duty Of Good Faith Australian Contract Law

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Whether The Arrangement Is Totally Social As Claimed By The Purchaser Of The Ticket?


A binding contract is an agreement which is enforceable and valid in law. In order to make a valid contract, the main components that are required are: (Clarke, 2011)
An offer – When the offeror communicates his desires to an offeree in the form of a statement or proposal, then, it is called an offer. An offer can be written or oral in nature and can be made to one single person or to the entire world and is held in (Carlill v Carbolic Smoke Ball Co, 1893).
An acceptance – An acceptance is the approval of the offer by the offeree. an acceptance must correspond to the terms of offer in order to be valid in nature. an acceptance once made can only be revoked provided it is not within the knowledge of the offeror and is held in (Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH, 1983).
Consideration- When an offer is supported by an acceptance then it is an agreement in law. But, to convert an management in a contract it is necessary that it must also contain some kind of benefit which is moved amid the parties for exchange of promises. This benefit is called consideration in law. A consideration must be of some value but should bit be illusionary in nature and is held in (Biotechnology Australia Pty Ltd v Pace, 1988)
Capacity of the parties – The parties are said to be eligible to enter into a contract if they are not barred under law, are major and has mental capacity to establish a contract and is held in (Nash v Inman, 1908).
Legal intention of the parties – The parties must have legal intention, that is, they are willing to enforce the contract legally. Any contract which lacks legal intention is not valid in law and is held in (Balfour v Balfour, 1919).
Thus, threes are the main five components that must be present amid the parties in order to establish a legally valid contract.
Oral and written contract – which is better?
It is not necessary that the contract must be in writing in order to be valid in nature.
In law, in order to make a valid contract the basic requirements are its essentials, that is offer, acceptance, consideration, legal intention and the party’s capacity. When all these requirements are met then the contractual parties can establish a contract regardless of its nature, that is, a contract can be made verbally (oral contract) or it can be made textually (written contract). The validity of both the oral contract and written contracts are rightly established in the leading case of (R v Clarke, 1927). (Latimer, 2012)
Thus, there is no compulsion that the contract must be in writing. However, it is seen because of various reasons that the contract if in writing is more preferable and authentic when compared with oral contracts. The main reason as to why a contract should be in writing as against an oral contracts are:
When a contract is in writing then the terms of the contract are written on the piece of paper. When the terms are written on the piece of paper then it becomes very easy to interpret the term in cases of confusion;
The true intention of the parties at the time of making of the contract can be derived provided the contract is in writhing;
There are few contract, such as, deeds, land agreements, etc which cannot be made amid the parties if the same are not in writing. Thus, there are few contract which a have no validity if the same are made orally. So, oral contract are less preferred when compared with written contracts if such kinds of contracts are made amid the parties;
It is thus submitted that a contract can be either in oral form or written form, however, if the contract is in written form then the same has better authenticity when compared with oral contarcts.
Formal contracts and basic requirements
A written contract which requires auditing requirements for its validity and enforceability are called formal contracts. These are the contracts which require certain kinds of additional formalities and without them the contract cannot be said to be established amid the parties. in the leading case of (BP Refinery (Westernport) Pty Limited v President, Councillors and ratepayers of the shire of Hastings , 1977), the basic requirements of the formal contract is analyzed by the court.
 Thus, the main formalities that are required for their formation of formal contracts are: (Harper, 2004)
That a formal contract must always be in writing signed by the parties and must always be made under seal. If the contract is not made under seal then such kinds of contracts cannot be said to be a formal contract;
It is very necessary that a formal contract must be resonate and equitable in nature.
A formal contract must always be in consistent with the express terms that are established amid the parties;

Normally a formal contract requires attestation of witnesses in order to make it enforceable in law;
A formal contract is one which must give business efficiency.
A formal contract does not require any kind of presence of consideration to make it enforceable in law. A contract complying with all other formalities but not supported by consideration is valid formal contract and has full enforceability.

Two of the basic kinds of formal contracts that are normally found are: (Laws, 2017)

Work contracts are normally considered as formal contract and all the contract elements along with other formalities must be comply with in order to categories the work contract as formal contract;
Loan agreements are also formal contract because it requires all the formalities for its enforceability, that is, signed by the parties, under seal, attestation by witnesses etc.

Thus, formal contract is a normal contract complying with all contractual elements along with addition formalities in law.
Case study based on legal intention in a contract
A contract is the combination of offer of proposal communicated to offeree which is accepted by the offeree. The parties are capable and supported their mutual promises with the help of some benefit called consideration.
It is submitted that when the promises are mutually exchanged amid the parties, then, the offeror and the offeree must have legal intention to bind by the promise. The legal binding effect of the promises establishes that when the promises are made the offeror and the offeree both acknowledges the fact that the contract is legally binding and is not formulated without any legal obligation. (McKendrick & Liu, 2015)
However, in (Balfour v Balfour, 1919), it was held by the court that when the parties are in family relation, then, normally the parties does not want to enter into a contract with legal effect because the relationship is based on mutual love and affection. Whereas, in (Lens v Devonshire Club, 1914), the court has held that when the parties are in business relationship, then, normally there is no mutual love and affection and thus the parties tend to abide by the contract legally.
But, this presupposition of the court is not always true. It (Rose & Frank Co v JR Crompton & Bros Ltd, 1924), that the parties were in commercial relationship, still, the contract was found not to be bound legally because when the contract was made then the parties entered into the contract but not to honor the same legally.
In (Simpkins v Pays, 1955), three friends fill a column in news paper and were later won the column. The court held that all the three friend when entering into the quiz ere not carrying on the activity on the social platform but with the intention that they will share the prize jointly.
Thus, it is the situation of the circumstances that decide whether the contract is bound legally or not. If the contract is not bound with legal intention then it is not enforceable in law.
Application of law and conclusion
Looto company gave a lottery ticket which is purchased by a group of friends for $ 2. Only one of the friends was buying the ticket on behalf of all the other friends. When the ticket won, the buyer claims that there is no legal intonation and thus he is alone be allowed to claim the pries.
By applying the law laid down in (Simpkins v Pays, 1955), it is submitted that even though the friends are in social relationship but the intention of the parties are to abide by the ticket jointly. They intent to distribute the prize and thus, there is presence of legal intention.
So, there is a valid contract and the prize should be distributed amongst all the friends.
Principal – Agent & Principal – Independent contractor.
An agent is the person who is the delegate of his principal (master). The relationship of the principal and the agent is based on the law of agency wherein the master guides the actions of the agent and is; responsible for his actions. Thus, to make any person as the agent of the principal, it is necessary that; (Teacher, 2017)

An agent and principal can be a natural person, a corporation or an entity;
The principal entrust authority upon the agent either expressly, impliedly or apparently;
The agent must act within the entrusted authority;
When the acts is carried out by the agent within the entrusted authority then such actions will make the principal binding and answerable;
It is a fiduciary relationship;
The principal controls the direction, actions, manners in which the agent must act;

In the leading case of (Hely Hutchinson v Brayhead Ltd, 1968), the director of the company was held to be the agent of the company and has implied authority to carry out the tasks on the behalf of the company and such tasks are binding upon the company. In the leading case of (Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd , 1992), an agent was held to be the party representing the principal and thus imposes liability upon the principal that occurs because of his omissions or actions.
Thus, a principal is directly responsible for the actions of the agent and thus the liability is on the shoulders of the principal for the conducts of the agent carried out within his authority.
An independent contractor is the person who is appointed by the principal under the contract for service. The main aim of the independent contractor to complete the tasks that is allotted to him without any interference of the employer. Thus, the main requirements to make an independent contractor are:
The contractor is appointed under the contract for service;(Latimer, 2012)
The main aim of the contractor is attain the results of the tasks that are allotted to him by the employer;
There is no control of the employer when the tasks is managed by the controller;
The authority to carry out the tasks in whatever manner lies with the contractor and there is no decision making interference of the principal when the contract is for service.
Thus, when a liability arises because of the actions of the independent contractor then such liability does not move towards the principal and it is the independent contractor who must be answerable for the same.
Thus, the transfer if liability in cases of a relationship with an independent contractor is different from a relationship with an agent. Thus, if the principal wants to make him liable for the liability directly then he must create an agency relationship otherwise he must establish a relationship of principal and an agent.
Balfour v Balfour (1919).
Biotechnology Australia Pty Ltd v Pace (1988).
BP Refinery (Westernport) Pty Limited v President, Councillors and ratepayers of the shire of Hastings (1977).
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1992).
Brinkibon v Stahag Stahl und Stahlwarenhandelsgessellschaft mbH (1983).
Carlill v Carbolic Smoke Ball Co (1893).
Clarke, J. (2013). Formation. Retrieved September 19, 2017, from Australian business Law: https://www.australiancontractlaw.com/law/formation.html
Harper, M. (2004). The Implied Duty of Good Faith in Australian Contract Law, Volume 11, Number 3 .
Hely Hutchinson v Brayhead Ltd (1968).
Latimer, P. (2012). Australian Business Law 2012. CCH Australia Limited.
Laws. (2017). KNOW THE TYPES OF FORMAL CONTRACT. Retrieved September 1, civil engineering, from Laws: https://contract-law.laws.com/types-of-contracts/types-of-formal-contract
Lens v Devonshire Club (1914).
McKendrick, E., & Liu, Q. (2015). Contract Law: Australian Edition. Palgrave Macmillan.
Nash v Inman (1908).
R v Clarke (1927).
Rose & Frank Co v JR Crompton & Bros Ltd (1924).
Simpkins v Pays (1955).
Teacher, T. l. (2017). Contracts made by agents. Retrieved September 19, 2017, from The law Teacher: https://www.lawteacher.net/free-law-essays/contract-law/contract-made-by-agents.php

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