Brew Basics: Tiptoe into contract law

3 mins

Any conversation involving contracts often strikes fear, but it need not be the case. Let’s start with an easy tiptoe into the land of contracts.

At its most basic, a contract is an agreement between two or more people (or entities) to do X in exchange for Y. The notion of X and Y can stand for any number of promises, but this exchange is what we call in Latin “quid pro quo”. Translated it means “something for something” or “this for that”. Or in other words, nothing comes for free.

What is free will?

Contract law is a fascinating area of private law. You get the chance to observe how humans behave when left to their own negotiating devices. It’s also unique because contractual obligations are self-imposed by the parties rather than by law.

A significant part of modern Australian contract law is based on principles developed in England during the 19th century. In particular, the “will theory” of contract continues to influence how we enter into and interpret contracts.

The will theory says that a contract is “the expression of the will of the contracting parties and should be respected and enforced by the courts”. It means that there is a wide range of things that parties can agree and contract on. This includes the sale of business, land transactions, contracts of employment, provision of all manner of goods and services, and so on. But it also means that if one party willingly entered into a bad deal in the first place, then there is not much they can do to get out of the contract later on.

“The political and social context in which modern contract law developed … favoured individualism, self-reliance and the exercise of free will over government intervention and paternalism.”

— Atiyah, The Rise and Fall of Freedom of Contract (1979)

There are limited exceptions to getting out of a contract (also known as avoiding or vitiating a contract)—such as duress, illegality, unconscionable conduct, mistake—and as you will see in later blog posts, these are fairly difficult to prove.

Other theories of contract include the “promise theory”, which is that a contract can be viewed through a moral lens as a promise to do something. There is also the “consent theory”, where contracts operate as a system of entitlements between the parties.

I mean what I don’t mean

Free will is all well and good, but parties often come unstuck due to a combination of the following:

  • Parties are confused about the deal
  • All is hunky-dory at the start and there is no Plan B when things go south (e.g. who bears cost blowouts and delays)
  • Bad lawyers, bad drafting (e.g. when clause has more than one interpretation)
  • General miscommunication between everyone (parties and lawyers)
  • DIY contracts (e.g. back of the napkin stuff, or verbal I said / you said)
  • Using the wrong contract form without understanding the consequences
  • Bad contract management (i.e. “What contract?”)

This is not a comprehensive list. Something else to add to this list—unreasonable people. The bottom line is that unreasonable parties are a catalyst for contractual disputes. You can have the most bulletproof contract in the world, but if the parties are unreasonable, then you’ve secured yourself a one-way ticket to contract hell.

We didn’t start the fire

Despite the pitfalls, contracts are still a practical and useful way to organise our dealings with others. It solves some of the eternal problems and misunderstandings that have always existed between humans.

Most of all, contracts are malleable to fit any given (but not illegal) purpose, yet grounded in established rules of law. It means that you know your rights, obligations, and options when things go well or go south.

On this note:

We didn’t start the fire
It was always burning
Since the world’s been turning
We didn’t start the fire
No we didn’t light it
But we tried to fight it

— Contract lawyer, or Billy Joel

Other resources:

  • Jeannie Paterson, Andrew Robertson, Arlen Duke, Principles of Contract Law (Thomson Reuters, 3rd ed, 2009)

📸 Photo // kyler trautner on Unsplash

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