Contract Law

MBAZ605 Business Law - Contract Law Notes (2025 S2)

1. Introduction

  • What is a contract?
    A contract is a legally binding agreement in which each party assumes rights and obligations in respect of the other.

2. Key Features of Contracts

  • Formality: Contracts can be written or verbal but must adhere to certain legal standards depending on the jurisdiction.

  • Ubiquity: Contracts are common across all areas of business and personal relationships.

  • Variety: Contracts can take many forms depending on the subject matter and parties involved.

  • Importance: Contracts provide legal protection for all parties involved and ensure obligations are honored.

3. Sources of Contract Law

  • Common Law: Judge-made law formed by the decisions of courts over time.

  • Statute Law: Laws enacted by the legislative body. The principal statute governing contracts in New Zealand is the Contract and Commercial Law Act 2017.

4. Who Can Enter into a Contract?

  • Any legal person, which includes:

    • Natural persons: Human beings.

    • Artificial persons: Bodies corporate, such as companies or organizations.

5. Relevant Statutory Provisions

  1. Companies Act 1993 (

    • Section 16:

      • Every company has full capacity to carry on business, enter into transactions, and exercise rights and powers, both within and outside New Zealand.

  2. Incorporated Societies Act 2022

    • Section 16: States that an incorporated society is a body corporate with the capacity to enter into transactions.

  3. University of Canterbury Act 1961

    • Section 3: Founded as a body corporate with perpetual succession, able to hold property and be involved in legal actions.

6. Formation of Contracts

6.1 Key Elements for Formation

  1. Offer and Acceptance

  2. Intention to Create Legal Relations

  3. Consideration

6.2 Offer and Acceptance

  • Definition of an Offer: An expression of willingness to contract, intended to become binding once accepted by the offeree.

  • Difference from Invitation to Treat: An offer is binding when accepted, while an invitation to treat is not.

  • Offeror and Offeree

    • Offeror: The person making the offer.

    • Offeree: The person to whom the offer is made.

6.3 Example of Offer

  • Case: Harvey v Facey, 1893: Harvey telegraphed Facey asking for the lowest price of the Bumper Hall Pen. Facey replied with a price. When Harvey accepted this price, it raised questions about the existence of a valid contract.

6.4 Assessment of Offers

Examples assessed for whether they cap an offer:

  1. “I offer to sell you my car for $10,000.” (Valid)

  2. “I will sell you my car for $10,000.” (Valid)

  3. “I would sell you my car for $10,000.” (Not valid)

  4. “I want $10,000 for my car.” (Not valid)

  5. “I wouldn’t accept less than $10,000 for my car.” (Not valid)

  6. “Would you give me $10,000 for my car?” (Not valid)

6.5 Termination of Offer

  • Revocation: The offeror communicates their intention to retract the offer.

  • Rejection: The offeree communicates disinterest.

  • Lapse of Time: The offer has an expiry date, or lapses after a reasonable time.

  • Failure of Condition: The offer remains until a specified condition fails.

6.6 Acceptance

  • Definition of Acceptance: A final and unqualified expression of assent to the terms of the offer. Can be by words or conduct.

  • Counter Offers: A counter-offer serves as a rejection of the original offer (case: Hyde v Wrench, 1840).

6.7 Time of Acceptance

  • Acceptances are generally complete upon communication unless an electronic form of communication is utilized.

  • Electronic Transactions: Defined under relevant statutes; an electronic communication is considered received when it enters the designated information system.

7. Intention to Create Legal Relations

  • Requirement for Legal Intention: Parties must intend for the contract to be legally binding.

8. Consideration

  • Definition: A bare promise is not enforceable; something valuable must pass from each party. This can include money or the performance/non-performance of acts.

  • Case: Thomas v Thomas, 1842: Mrs. Thomas' use of the house for a payment of £1 per year was evaluated for sufficiency of consideration.

8.1 Contracting by Deed

  • Deeds: Contracts executed by deed do not require consideration.

9. Defects in Contract Formation

  1. Incapacity

  2. Misrepresentation

  3. Mistake

  4. Unfairness

  5. Illegality

9.1 Incapacity

  • Minors’ Contracts: Contracts with minors (under 18) are generally unenforceable. Relevant statutory provisions define conditions under which contracts may still be enforced.

  • Intoxication: Contracts entered into by intoxicated individuals may be voidable if the other party is aware of the intoxication.

9.2 Misrepresentation

  • Definitions: Terms are promises in contracts; representations are pre-contractual statements of fact; misrepresentations are false pre-contractual statements.

  • Statutory provision: S 35(1) affirms entitlement to damages due to misrepresentation.

  • Important Cases: Bisset v Wilkinson and Magee v Mason clarify misrepresentation and inducement.

9.3 Mistake

  • Types of Mistakes: Qualifying mistakes include unilateral, common, and different mistakes affecting contract decisions.

  • Statutory Relief: Under certain conditions, courts can remedy contracts formed under mistake (S 24(1)).

9.4 Unfairness

  • Forms of Unfairness: Includes duress, undue influence, and unconscionable bargains. Cases such as McIntyre v Nemesis DBK and Hogan v Commercial Factors illustrate these concepts.

9.5 Illegality

  • Contracts that are illegal (e.g., fraud or criminal activity) are unenforceable as per Section 73.

10. Terms of Exclusion

  • Exclusion Clauses: E.g., a vendor may limit liability for loss or damages arising from defects.

  • Fraud: Exclusion clauses cannot protect against one's own fraud (Pearson & Son Ltd v Dublin Corporation).

10.1 Examples of Clauses

  • Entire Agreement Clause: MUST detail complete agreement.

  • No-reliance Clause: Acknowledges reliance on own judgment, not on representations.

  • S 50 and S 76: Outlines equity of clauses under exclusion of misrepresentation.

11. Remedies

11.1 Cancellation

  • Statutory provisions (S 36(1) and S 37(1-2)) outline conditions for when a party may cancel a contract.

  • Case Example: Mana Properties v James Developments highlights terms of cancellation relating to performance obligations.

11.2 Damages

  • Definition: Damages serve as primary remedy for breach and attempt to place the innocent party in the position they would have been in had the contract been fulfilled as stipulated.

  • Calculating Damages: Complicated; seeks reasonable compensation contoured by contract dynamics. Case references: Williams v Kirk, MDC v Altimarloch.

11.3 Specific Performance

  • A court may necessitate performance as promised only when damages are deemed inadequate (A-G v R).