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									This is an archive copy of a document originally located at http://www.dsr.nsw.gov.au/industry/r_a-
z_leg_contract.asp
For further information on this document please contact NSW Department of Sport and Recreation

                                           About contracts
A contract creates legal obligations. With obligation comes risk.

It is essential that any contract or agreement be reduced to writing.

With very few exceptions, contracts are not required to be in writing or evidenced in writing to be valid. However, it
is clearly of great benefit to have the terms and conditions of contracts set down in writing.

A "free" promise (for no value to the party performing the contract) is unenforceable unless it is contained in a
deed.

A deed is a written contract signed, sealed and delivered. It is fairly unlikely in the sporting context that
organisations will execute deeds. top of page


                        6 essential elements of a contract
There are six elements are required to form a legally binding contract:

1. Intention to create legal relations
The law will only recognise contracts where there is an intention to create legal relations. It is presumed that:

· parties to an agreement concerning commerce or business intend to be legally bound; and
· parties to an agreement of a family, domestic or social nature do not intend to be legally bound.

For example, an agreement by a husband to cook dinner for his wife is not an agreement which is intended to
create legal relations.

The Court will look at the conduct of the parties to determine whether there was intention.

2. Offer and acceptance
An offer is a proposal or undertaking. On acceptance of the offer a legally binding agreement is formed.

A number of rules apply to the making of an offer. It is important that an offer be communicated.

There are also specific rules in relation to acceptance. For example, acceptance must be precisely in accordance
with the offer, or it amounts to a counter-offer, and it must be complete and unqualified (conditional assent is not
acceptance).

3. Consideration
A legally enforceable contract must be supported by consideration (or be in a particular form - as in a deed).
Consideration is usually money, however, a promise to do something can amount to consideration.

Consideration must not be in a form of an act which is illegal or unlawful.

4. Capacity
A contract may not be valid if one or both parties lack the legal capacity to contract. Five classes of persons are
subject to degrees of incapacity to enter enforceable contracts, being minors, the insane, the intoxicated,
corporations, and "capital felons".

5. Genuine Consent
Consent must be given freely, and without a mistake about the nature of the contract or undue pressure or
misrepresentation. The doctrine of mistake is very narrow, but in appropriate circumstances, will allow the parties
to avoid the contract from the beginning.
A misrepresentation, whether innocent, negligent or fraudulent, will not be "actionable" (giving various remedies)
unless the misrepresentation induced a person to enter a contract. Any "unconscionable" behaviour which leads to
contracting on very unequal terms may mean the contract is voidable.

6. Legality of objects
Various statutes prescribe whether a contract is void or a contracting party is subject to penalties if certain terms
are included. A contract in restraint of trade is prima facie unenforceable unless it is reasonable having regard to
the interests of the parties and the public.

What is reasonable will depend on the activity, time and geographic area of the restraint. You should be aware of
the implications of "restraint of trade" clauses. top of page


                        Contractual Terms and Conditions
If the six principles of contract law are present it is necessary to examine the terms of the contract to understand
its operation.

The law classifies statements made by the parties into two categories:

(a) Representation - a statement made in the course of negotiation, which may or may not be intended to be
legally binding.
(b) Term of a contract, which is legally binding, including:

§ a condition - a term of fundamental importance to the contract, the breach of which means the innocent party is
free to end the contract or continue to perform his part of the contract and sue for damages, or

§ a warranty - a term of lesser importance to the contract, leaving the contract intact, but allowing the innocent
party to sue for damages, while still performing his or her part of the contract.

Various rules determine how a term is characterised. A "condition" is a fundamental term of a contract. The parties
should clarify which terms are of this degree of importance. Additional terms may also be implied through custom
or through statute. It is important that terms are certain, clear and not ambiguous.

Where a contract includes an "exclusion" clause, limiting the rights of a party, certain rules must be adhered to in
order to enforce the exclusion. This includes a rule that notice of the exclusion clause must be given prior to
formation of the contract.

Generally, only the parties to a contract can sue or be sued on a contract. One significant exception to this rule is
in the case of insurance contracts, where a party for whom the benefit of the contract was intended may sue, even
if it was not an original party to the contract. top of page


 10 things to be aware of when entering or negotiating a
                        contract
1. Verbal or written representations
Care should be made in representations made prior to the contract. Such statements can become part of the
contract depending upon the time the statement was made, its form and the degree of reliance on special skills or
expertise of the other party.

If the statement is a "term" of the contract, damages may follow. An action for misrepresentation may also result.

For example, specifically in relation to services, the Trade Practices Act makes it an offence to falsely represent:


        that services are of a particular standard, quality, value or grade;
        that a particular person has agreed to acquire services;
        that services have sponsorship, approval, performance characteristics, accessories, uses or benefits they
         do not have;
        that a corporation has a sponsorship, approval or affiliation it does not have, the price of services;
        the need for any services, or
        the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.

2. Reduce it to writing
It is prudent for all contracts to be in written form, rather than verbal - this relieves much of the difficulty of
providing evidence of the terms of the contract in the event of dispute.

3. Observe the formalities
You should ensure all six essential elements are present - legal advice is recommended.

4. The tendering process
Be particularly careful in your involvement in the tendering process. As it is a process, this may lead to
uncertainties over formation of the contract. Where you are participating in a non-conforming tender, make sure
the parties sign off on the final form of the agreement.

5. Freedom and capacity to contract
There should be no "undue influence" in contracting - that is, no undue force or pressure should be placed on the
other party to contract.

6. Restraint of trade issues
Contracts in restraint of trade will be unenforceable unless they are reasonable.

The duration and extent of restraint will be examined, and whether the contract is contrary to the public interest.

7. Implied terms
Certain terms will be implied to contracts by custom or by statutes, most commonly, in the sale of goods, a term is
implied that the goods are of merchantable quality.

Other warranties that may be implied are that:

· services will be rendered with due care and skill;
· any goods supplied with the services will be fit for the purpose, and
· where the purpose is made known, the services and any material supplied in connection with them will be fit for
that purpose.

8. Limitation of liability
Remember that you can attempt to limit your organisation's liability, (subject to an overriding test of fairness), to
the cost of having the services supplied again. See the Trade Practices Act s.68A.

9. Breaches and threatened breaches
Where breaches of contract occur or are threatened, the innocent party will have various rights and remedies,
depending upon what is agreed and the significance of the breach. It is recommended that legal advice is sought in
relation to such breaches.

10. Vetting procedures
All responses to tender should be carefully vetted.

You should ensure all relevant authorised parties sign off on these conditions prior to performance of the contract.

Acknowledgement
The content of this information sheet was written and provided by Sports lawyers, Rigby Cooke
Tel: 03 9321 8810 Fax: 03 9321 7900 Email: sportslaw@rigbycooke.com.au

								
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