Contracts are used within the legal system to protect the rights of parties
that reach an agreement or a mutual understanding.
Both the common law and statutory laws have application to contracts.
The rules with respect to the essential elements of a contract are
predominantly common-law based, but some have been modified by
statute. For example, there are numerous statutes protecting consumers.
The majority of these are state rather than federal statutes, because the
Commonwealth Constitution restricts the law-making of the federal
parliament to certain matters. One important piece of legislation also
discussed later, is the Trade Practices Act 1974 which was replaced by the
Competition and Consumer Act 2010.
There has been a steady increase in legislation over the centuries to a point
where it rivals the common law as a source of law governing contract law.
Legislation law, statute law, made by Parliament, is a particularly important
source of law because, apart from its volume (at all levels in Australia), the
rule is that if common law and statute law conflict, the latter prevails.
Furthermore, we turn to Parliament to pass laws that are required to deal
with social change because the common law moves at a snail's pace by
An understanding of the law of contract is of fundamental importance to the
functioning of the legal system in the context of business practices and
What is a Contract?
A 'contract' is defined in The Law of Contract (9th edn, Sweet & Maxwell,
London, 1995) as 'an agreement giving rise to obligations that are enforced
or recognised by the law'.
Put simply, a contract is a promise or set of promises which the courts will
When you agree to buy something now and pay for it later or take out a loan,
you enter into a contract. The contract is between you and the person or
organisation that you bought or borrowed from. However, contracts differ
from a mere agreement that you might make with a friend or family
member as a contract (unlike a mere agreement) is legally binding and can
be enforced be the courts.
As a contract is a legally binding agreement between two or more people or
businesses, contracts are considered to form the foundation of all business.