Business Law- Australian Woollen Mills v Commonwealth

Australian contract law is inherited from the English contract law. This law specifically deals with the enforcement of promises made by one party to the other forming legal contractual relationships. To form a contractual relationship it is important to fulfil five essential conditions given under the contract act to make a contract legally binding. First essential is the Formation of Agreement where one party makes an offer and the other party accepts or reject it. The second most important essential is Consideration i.e. a promise in return of something or money. Absence of consideration amounts contract to be invalid. The third essential is the Capacity of a person to enter into a contract. The person entering into a contract must be of sound mind, should not be toxic or drunk and must be of legal age to enter into contract. The fourth essential is the Intention of the parties entering into contract to create legal contractual relationship with each other. The last and the fifth essential is Certainty where the terms and conditions of the contract must be clear, unambiguous, complete and must be binding on the parties to the contract. These are the five essentials which are considered very important to make a contract a valid contract. Breach of it would amount parties to the contract to pay compensation and damages to the innocent party who suffered from its breach.

An Australian leading case law Australian Woollen Mills v The Commonwealth (1954) clearly explains how an offer when accepted by the other party gives rise to the legal obligation towards the contract which makes it legally binding for both the parties to fulfil.

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In case of Australian Woollen Mills v The Commonwealth (1954), the Australian government in June 1946 made an announcement in which they offered subsidiary to the manufacturers who purchase wool that is used in manufacturing garments and sell it for local consumption. Government paid the manufacturer subsidiary for two year. Later in 1948 i.e. after 2 years, the government stopped paying subsidies to the manufacturers. The plaintiff (Australian woollen Mill) sued the government of Australia for the breach of contractual duties to which the government denied the mandatory obligation upon it on the ground that there existed no legal contract between them and hence there exist no liability.

The high court of Australia in Australian Woollen Mills v The Commonwealth (1954) held that, there was no contract in existence between the Australian woollen mill and the Commonwealth. The court also said that the statement made by the government while offering subsidiary was not offered as a consideration to the term of buying the wool and selling into local market. The Quid Pro Quo must be present in a relationship between the statement made and the act done. Quid Pro Quo is a legal term which means something given to someone for some other or different thing i.e. in exchange or substitute of any goods or services. Buying wool by the manufacturer is merely a condition which is to be fulfilled to receive subsidiary from the Government. It is not a consideration against any promise or offer. It was noted by the court that there was no request or invitation made for the same. It was also concluded by the court that the government had no intension to create any legal relationship with the Australian Woollen Mill. Hence there was no breach of any contractual relationship between the Australian Woollen Mill and the government. The main reason for putting a condition precedent for the entitlement of the subsidiary is an initiative by the government to promote the industries. After the judgement of the Australian high court the privy Council of the Australia gave special leave to the Australian Woollen Mill to appeal. They too agreed with the high court and dismissed the appeal.

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For a contract to be valid it must be in accordance with the laws mentioned in the act of the contracts stating the essentials for a contract. Unilateral agreements are not taken into consideration and is not held valid under the contracts act. For a contract to be valid, both the parties must agree to the terms and conditions of the contract where one party makes an offer and other accepts it. The person entering into contract must be capable to do so and there must be an intention to create legal relationship between the parties along with the consideration.

There are many ways in which a contract can come to an end in case there is breach of contractual obligations, delay in performance of the duties, frustration, failure of any contingent condition etc.

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In case there is breach of contract, various remedies are made available to the innocent party by the contract act. The remedies available are: damages, liquidated damages, specific performance and injunction. Damages are paid when the parties are substituting the breach with money by compensating it and liquidated damages are when the amount is mentioned in the contract in case of breach of contract. Specific performance is when the court directly orders the party to perform the obligatory duties mentioned in the contract. Last is the injunction where the court may order the parties who are part of the contract to either do or not to do certain duty which relates to the contract formed between the parties.

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