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Wednesday, 8 September 2010 |
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Contractor's legal guide - contract law principles
Wednesday, 14 May 2003
Introduction
A relationship, which you will be familiar with, is that of employee and employer. It is an old relationship and has until recent times been the most common relationship for most “employed” people. Another sort of contract is that of contractor and principal. The object of these notes is to explore the difference between these relationships and the issues that need to be considered when executing contracts.
Contract Law Principles
A contract is an agreement between two or more parties. It is a voluntary undertaking whereby the parties agree as to a set of obligations and responsibilities.
For a contract to come into existence there needs to be 5 things satisfied. They are:
(a) Offer. An offer is made by one party to another offer.
(b) Acceptance. The offer must be accepted by another party. A counter offer is a rejection of the current offer. Often the current offer is made again but there is no obligation to do so.
(c) Consideration. Value must be exchanged between the parties.
(d) Intention to create legal relationship. This obligation is normally easy to satisfy.
(e) Certainty. An ambiguous contract is void, ie it never existed. Courts vary rarely find contracts bad for uncertainty, however, there needs to be certainty in the parties, the principal undertakings, the subject matter and the price must be certain.
Terms in a contract may be express or implied. For a term to be implied into an agreement it must satisfy the following things:
(a) it must be reasonable and equitable;
(b) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;
(c) it must be so obvious that it goes without saying;
(d) it must be capable of clear expression; and
(e) it must not contradict any express term of the contract.
We will revisit the importance of implied terms when looking at intellectual property rights.
Normally it is only where there is a breach of contract that legal proceedings are commenced in a Court or otherwise. A breach arises when a party fails to
complete a contractual obligation.
A breach does not necessarily discharge a contract. The contract may be terminated by the party not in breach, at its option, if the breach is a breach of
an essential term.
The normal remedy for a breach of contract is for loss or damage suffered which is reasonably foreseeable as a result of the breach. This is often called damages. The object of an award of damages to compensate for breach of contract is to put the person who suffered the damage in the same position as though the contract was fulfilled.
Other remedies include specific performance, which can sometimes be given if damages are not adequate and could include things such as the assignment of
intellectual property rights. We will discuss intellectual property rights later.
A contract can sometimes be terminated in anticipation of a breach. This is dangerous as the Court requires clear indication that a party is unable and unwilling to complete its obligations before such relief will be granted.
Contracts are normally discharged when all the obligations pursuant to the contract have been fulfilled. This is unusual in most IT contracts as normally there are some warranties and obligations which are not discharged and remain extant.
Contracts can be varied or brought to an end by Agreement.
Sometimes contracts are frustrated and become unenforceable. This arises when the subject matter of the contract is destroyed, a party dies or excessive
There is an important difference, which arises in contracts and that is the difference between an ordinary breach of a warranty (or contractual obligation) and breach of an indemnity (which is a special kind of obligation).
For an ordinary breach of a warranty there are three important limiting factors:
(a) For breach of a warranty, action must be commenced within the statute of limitation period (usually 6 years) of the loss or damage arising. This does not apply for an indemnity which is continuing obligation for the duration of the contract.
(b) Liability for a breach of warranty is confined to usual contractual remedies. In relation to an assessment of any damages payable for a breach of a warranty this means a person who breaches a warranty is only responsible for loss and damage which is foreseeable and arises due to the breach. This is not the case with indemnities.
(c) Indemnities are normally drafted much more widely to cover third parties and circumstance beyond the ordinary breach circumstances. In some circumstances they apply even when there is no breach of contract by the party required to pay, pursuant to the contract, at all! The triggering event may well be the act of third party. A well known instance of this is that of guarantees in which one party indemnifies a second party for the default or breach of a third party.
Accordingly, when reviewing a contract a good start is to cross out all the indemnities.
All these obligations apply to contractors and employees alike. We will study specific provisions later.
This information is provided courtesy of White SW Computer Law
White SW Computer Law (wcl@computerlaw.com.au)
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A great legal guideI had a legal assignment. this website helped out me out with some great facts. thanks a billion you're definitely a reccommendation in my bibliography Megan, 10/15/2005 09:16:52 PM
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