MODULE 02

Question 1

WHAT IS A CONTRACT ?

Answer 1

AN AGREEMENT THAT IS LEGALLY BINDING IS A CONTRACT.

A promise or a number of promises that are legally binding.

Question 2

Where does contract law come from?

Answer 2

Contract law is almost entirely judge-made law.

Statute law affects contract law in a number of ways, but it usually serves to qualify the judge-made law in specific contexts.

Law is derived from two sources, which are (in order of precedence):

1. Parliament, through pieces of legislation such as acts and regulations, known in general as statute or ‘Parliament-made’ law. These laws can be state or federal.
2. Courts, known as common law or “judge-made’ law, made as cases come before judges. Cases set precedent for other similar cases, based on the desirability of consistency.

Question 3

WHAT IS PRIVITY ?

Answer 3

Privity is concerned with the question of who is ‘privy’ to a contract, that is, who are the parties to a contract.

Question 4

WHO IS LEGALLY BOUND BY THE CONTRACT ?

Answer 4

The only people or companies that are legally bound by a contract are those people or
companies that entered into the contract.

Question 5

WHAT IS SUBROGATION ?

Answer 5

ONLY Insurance companies ARE ALLOWED TO DO THIS , even if they are not parties to a contract, will often be able to commence proceedings on behalf of the insured person. This is called ‘subrogation’.

In reality, if the architect is insured, the insurers will take up any case alleging that the
architect failed to perform his or her duties.

Question 6

WHAT ARE THE 8 ELEMENTS OF A CONTRACT ?

Answer 6

1. Offer
2. Acceptance
3. Consideration
4. Intention (to create legal relations)
5. Certainty of terms
6. Legal capacity
7. Genuine consent
8. Legality of objective

Question 7

GIVE EXAMPLE OF A CONTRACT BEING VOID DUE TO LACK OF LEGAL CAPACITY ?

Answer 7

One or more of the parties is a minor or has an intellectual disability preventing him or
her from freely and voluntarily signing

Question 8

GIVE EXAMPLE OF A CONTRACT BEING VOID DUE TO LACK OF GENUINE CONSENT ?

Answer 8

One or more of the parties did not genuinely consent (e.g. was drugged while signing,
signed under threat, or did not have the authority to sign)

Question 9

GIVE EXAMPLE OF A CONTRACT BEING VOID DUE TO LEGALITY OF OBJECTIVE ?

Answer 9

The contract is for an illegal purpose (e.g. contracts to commit a crime)

Question 10

WHAT IS AN OFFER ? HOW DOES IT WORK ?

Answer 10

A party communicates to another party that they are willing to be bound without further negotiation on the terms proposed.
Generally, an offer will be open until it is either rejected or revoked.
This ‘communication’ does not need to be in writing and does not even have to be words.
For example, even where there is no formal offer or acceptance, it is often the case that parties will be performing actions that are consistent with there being an offer and an acceptance.
If the person is making an offer on behalf of an organisation, they must have authority to make the offer or it will not be valid.

Question 11

DO CALLS FOR TENDER CONSTITUTE AN OFFER ?

Answer 11

– Calls for tender or auctions are generally not offers under the law. Rather, they are usually invitations to treat or to negotiate—parties that respond to these will be the ones making
offers.

Question 12

DO QUOTATIONS CONSTITUTE AN OFFER ?

Answer 12

Often quotations will be offers that can be accepted

Question 13

WHAT IS ACCEPTANCE ?

Answer 13

A party communicates its unqualified acceptance to be legally bound by the terms put forward in the offer.

Generally, acceptance is only effective to create the contract when it is communicated to the other party. However, communication does not need to be words. ACCEPTANCE CAN ALSO BE BY CONDUCT

Question 14

CAN ACCEPTANCE BE REVOKED ?

Answer 14

acceptance cannot be revoked. Rather, attempting to revoke acceptance will be a
breach of the contract.

Question 15

DESCRIBE UNQUALIFIED ACCEPTANCE

Answer 15

Acceptance with no further negotiation. Importantly, the acceptance must be acceptance of the exact terms made in the offer. If any term is changed, then this is a rejection of the offer and it constitutes a counter-offer.

Question 16

WHAT IS CONSIDERATION ?

Answer 16

The promise must be given in exchange for ‘something of value’ (the ‘consideration’).

Put another way: a promise by Party A that is given for free and is not ‘purchased’ by Party B, will not be enforced by the law.

Consideration must be something ‘real’ in the eyes of the law, meaning love and affection is not consideration.

Consideration does not need to be adequate.

There must be an exchange, but it need not be fair or balanced.

Question 17

During negotiation, often parties will reach an agreement on all the relevant terms but will state that the agreement is ‘subject to contract’. When a contract is not ultimately executed, what happens?

Answer 17

Where the terms have been completely and finally agreed upon, and there is no intention to depart from them, but there is a desire to express fuller terms and performance is conditional on execution of a contract, or further terms may be added, this will be an agreement.

Where the intention is not to make a concluded agreement unless and until a formal
contract is signed, then no agreement.

Similarly, even if it is stated there is an ‘agreement to agree’ or a document is a ‘letter of intent’ only, where essential terms have been finally agreed upon and there is an intention to be bound, there will be a valid agreement (though this is a difficult argument to make).

Where parties begin performance, courts are more likely hold the agreement to be valid.

Question 18

HOW CAN AN INDIVIDUAL BE BOUND BY A CONTRACT ?

Answer 18

This is generally simple—an individual who wants to bind themselves merely has to communicate their willingness to be bound on certain terms to the other parties.
Usually this will be a signature, but there can be other valid methods (initials, a mark, a rubber stamped, or an e-signature).

Question 19

HOW CAN PARTNERSHIPS BE BOUND BY A CONTRACT ?

Answer 19

Partnerships have no legal personhood and cannot execute an agreement. Rather, a
partnership is a group of individuals collectively responsible for each other.
Someone executing the agreement must represent or be authorised to execute the agreement on behalf of some or all of the individuals.

Question 20

HOW CAN CORPORATIONS BE BOUND BY CONTRACT ?

Answer 20

Generally, this requires authorised representatives of the corporation executing the agreement.

There are rules under the Corporations Act for directors and secretaries executing
documents on behalf of their organisation.

Otherwise, except for example in the case of some misrepresentation or ostensible authority, a corporation cannot be bound.

Question 21

HOW CAN AGENTS / AGENCIES BE BOUND BY CONTRACT ?

Answer 21

Similar to this notion, if a principal confers authority by consent (usually written or oral
agreement) on an agent in relation to certain matters, the agent will be able to act on behalf of the principal in relation to those matters.

As will be seen, the architect often acts as the agent of the principal in contract issues, such as assessing claims of the contractor.

Question 22

WHAT IS ESTOPEL ?

Answer 22

Estoppel is a judicial device in common law legal systems whereby a court may prevent or “estop” a person from making assertions or from going back on his or her word; the person being sanctioned is “estopped”. Estoppel may prevent someone from bringing a particular claim

Question 23

WHAT ARE EXPRESS TERMS ?

Answer 23

Those documented within the agreement (whether spoken aloud, or written on a napkin, handwritten one- page document, or five-hundred-page PDF file).

Question 24

WHAT ARE IMPLIED TERMS ?

Answer 24

Implied by the court or by statute, i.e. they exist without being stated or written down or spoken—
may be included without any actual intention of the parties to include that term.

Question 25

CONTRACT (EXPRESS TERMS) VS IMPLIED TERMS ? WHAT HOLDS PRECEDENCE ?

Answer 25

contract is king—the contract can have an express term that excludes these implied
terms.

Question 26

WHAT ARE SOME IMPLIED TERMS THAT WILL GENERALLY APPLY NO MATTER WHAT IS WRITTEN IN THE CONTRACT ?

Answer 26

Materials supplied will be good and
suitable for the purpose for which they are used

Work is done in accordance with, and will comply with, the HBA or any other law

for any contract made now, the time
limits to claim for defects are:
– Six years for a breach that results in a major defect, and
– Two years for anything else.

Any provision that attempts to exclude the warranties is void.

contract and variations must be in writing.

Building Code of Australia

Building and Construction Industry Security of Payment Act 1999 (NSW) : A system by which contractors can claim progress payments.
‘Pay now, argue later’ system facilitating fast-track claims for payment for work completed by
a contractor (that can be properly disputed later).

Architects will often be responsible for
assessing claims for payment (regularity will depend on what is agreed, but often monthly).
Overrides what is written in the contract.

Common law :
Negligence
Standard of a reasonably competent architect imposed on architectural work.
Architects will owe a duty of due care, skill and diligence to the client (which is not “an extraordinary degree of skill or the highest professional attainments”).
No contract required (or can be implied in a contract)

Question 27

HOW DOES A CONTRACT END (TERMINATE) ?

Answer 27

Most commonly, a contract ends in four ways:

1. All the promises are fulfilled (‘discharge’ of the contract)
2. The parties mutually agree to terminate the contract
3. The contract permits a party to terminate the contract on the happening of an event
   (‘termination under the contract’)
4. A party breaches an important term of the contract which entitles the other party to terminate (‘termination under common law’).

The important starting point is that generally, breaches do not give the other party a right to terminate the contract. However, they may be able to claim damages (later).

Only breaches specified in the contract to allow termination (number 3) and breaches of terms that have the requisite degree of importance (number 4) will permit termination.

Any other breaches that do not fall under these headings do not entitle termination. In fact, an innocent party that attempts to terminate in these other circumstances will be in repudiation of the contract

Question 28

WHAT IS REPUDIATION ?

Answer 28

Repudiation is an unwillingness or an inability of one party to perform the contract.

To prove repudiation by a party, the other party must show this unwillingness or inability through (a) the words or conduct of the repudiating party, or (b) the position in fact of the repudiating party.

If a party repudiates the contract, the other party must communicate to the repudiating party that it accepts repudiation and terminates the contract.

Question 29

WHAT IS REQUIRED TO MAKE A CASE FOR DAMAGES UNDER A CONTRACT ?

Answer 29

1. There is a valid contract between the parties (going back to the elements above)
2. One party has breached an obligation under the contract in some way (need not be
   a serious breach)
3. The breach has caused some damage to the innocent party (usually, financial

Question 30

WHAT ARE LIQIDATED DAMAGES ?

Answer 30

Parties can agree in advance what damages will apply if there is breach (e.g. $5000 for every day that the contractor is late in performing the contract). However, these agreed damages must be a genuine pre-estimate of the damage, and not be punitive.

Question 31

What actually forms the contract?

Answer 31

The core document will be the agreement itself that the parties sign. However, the agreement may state that other documents form a part of the contract. These can include:
– Conditions (a longer list of contractual terms) and special conditions (that are added,
usually to override the standard conditions)
– Plans or drawings prepared by an architect
– Specifications (details about the work done, and the products of raw materials to be used)
– Bills of quantities (measured quantities of work to be done in the project, often
prepared by a quantity surveyor)

Of course, this assumes very formal dealings between parties. Less formal contracts can be made by providing quotations and actually performing work at the site, or even a phone call requesting work be done according to certain rates.

Question 32

WHAT IS A VARIATION TO A CONTRACT ?

Answer 32

It is a hallmark of building projects that unexpected enlargements, deductions, changes,
substitutions or modifications are required as the project unfolds.
These are a significant area of dispute, so must be managed very carefully and should be well-
documented by the architect.
Usually a contract will provide for a process by which these are requested (or more rarely,
ordered). Invariably, they must be requested in writing.
Architects should be aware that if an oral variation is carried out and paid for, the principal may
be considered to have waived (or relinquished) its right to insist on the writing requirement.