Ineffective Contracts

Generally, all aspects of modern life involve some form of written contract. However, as time pressures increase in daily life, the necessary diligence that is required to prepare a contract diminishes, which results in poorly drafted agreements, whether paper based, or online.

Drafting contracts and ensuring that they meet the requirements of the transaction is where the skill of the lawyer is employed. With the access to agreement documents being so easily available on the internet, standard precedent documents may be downloaded, and then used without having the document tailored to its specific purpose correctly.

Where a standard precedent agreement is used, this is where the user of such document should heed the … WARNING … precedent contracts are not tailored to the specifics of the person using them.

Precedent documents are designed as a generic document that needs to be modified to suit the specific bargain that has been agreed upon. Contract disputes are common where contracts are downloaded from the internet, not modified, or are incorrectly changed. This is where the skill of a solicitor is paramount to ensure that the bargain that has been agreed upon between the contracting parties has been documented properly. Cutting corners on contract preparation will result with ineffective contracts, and the potential for increased legal costs and losses if disputes arise as to the bargain that was supposed to be agreed upon.

There are various categories of ineffective contracts and some of these include discharge for breach of repudiation; discharge for frustration; inherently ineffective due to being unenforceable, void or illegal; never completed due to a breakdown in negotiations; or rescinded.

As example, in Pavey & Matthews Pty Ltd v Paul (1987) a quantum meruit claim was consider by the court in the context of an unenforceable contract. Mrs Paul had entered into a contract with a builder to carryout renovations on her cottage. Mrs Paul agreed to pay a reasonable fee for the building works. There was no written contract and the agreement was made orally. Under the Builder’s Licensing Act 1971 (NSW) the contract that was formed orally between Mrs Paul and the Builder was required to be in writing. The contract was not, and therefore not enforceable.

The builder completed the renovation works and Mrs Paul took up occupation in the property, but refused to pay the total amount of money owed to the builder which was detailed on the invoice. The builder had completed the work properly and had receive a portion of the payment. The builder brought a claim into the court against Mrs Paul for the unpaid amount, and the dispute ended up in the High Court. The question to be answered by the High Court on appeal was to determine if the builder’s claim for restitution for the unpaid amount was precluded by Statute. The High Court upheld the builder’s claim saying:

“… an action on quantum meruit, such as that brought by the appellant, rests, not on implied contract, but on a claim to restitution or on based on unjust enrichment, arising from the respondent’s acceptance of the benefits accruing to the respondent from the appellant’s performance of the unenforceable oral contract.”

The objective of restitution law is the prevention or reversal of unjust enrichments occurring. The law of restitution is concerned with the restoration to the plaintiff of a benefit conferred on the defendant at the expense of the plaintiff in circumstances, which make it unjust that the defendant should retain the benefit.

It is not uncommon for a party receiving a contract, such as a contract of sale or building contract for a property, to glance over the document without considering in detail the consequences of how the provision of the agreement will impact on them. No matter what type of contract a party enters into, reading and understanding the agreement is important to appreciate if the bargain has been documented correctly to what has been agreed upon. This is where it is important that if uncertainty arises, or the contract is in the hundreds of thousands of dollars, or even millions, is that you have a solicitor assist you on the same to protect your legal rights and interests.

The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799

Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”