Legal Agreements

The mentor, a seasoned Head of the Department with extensive experience managing educational institutions, expressed his delight at the mentee's interest in the Faculty’s management. He then shared his knowledge about legal agreements, a crucial aspect of educational management. The mentee, eager to learn from the mentor's expertise, was very receptive to the guidance.

 

The need for a written agreement

The Head said that to operate the college, it must buy goods and services and sell its services in the form of student tuition. He said that in a commercial transaction, it is most unwise to have a verbal agreement because there is no evidence if there is a dispute about what was agreed upon. There would probably be two contradictory views of what was agreed upon if anything was decided. Therefore, he strongly suggested that all agreements be fully contained in a single document. He stressed the word single because one could have a deal comprised of several documents, and even then, the total agreement may not be in writing; that is, it is in writing and verbal. He said this is a recipe for disaster. He strongly suggested that the entire agreement be in a single clear document that is well thought out and signed by both parties, where both parties keep a signed copy. The mentee already knew this. But he thought it was good to mention it because this area could unnecessarily cause problems and damage relationships between parties.

 

Creation of a contract 

The Head then said he wanted to talk about the agreement. He said that if the agreement stuck is legally binding, it is then called a ‘contract’. He said there were three essential parts to the creation of the contract. The first is that there needs to be an explicit agreement, which comprises an accepted offer. An example is when the college and painters agree to repaint the office. Second, each party must do something they do not ordinarily have to do. Here, the painters provide and paint the office, and the college pays for this. He said lawyers called this ‘consideration’. He said the final element was that the agreement must be legally binding, which is the usual situation in commercial contracts. He then summarised that there needs to be agreement, consideration, and intention to be legally bound for a legally binding contract.

 

Making the contract valid and enforceable

Having completed his list of the elements to create a contract, the Head said there were still four other elements to consider. These are those required to make the contract valid and legally enforceable. The first one is that the party must be able to enter the contract; that is, the party is not of unsound mind or under the influence of drugs or alcohol. Furthermore, they must be authorised to sign for and on behalf of their organisation. The second element is that they have consented to the agreement, and this consent was not obtained through fraud, duress (gun to the head), or misrepresentation. The third element is that there is no illegality in the contract, and the fourth and final element is that, in some instances, the contract needs to be in writing. For example, transfers of an interest in land are such an important transaction that must be in writing, and if not, then the contract is still valid but cannot be enforced.

 

Commercial and legal terms

The mentee asked about the actual aspects agreed upon, that is, the rights and obligations of each party called ‘promises’, ‘terms’ or ‘clauses’. The Head said they could be summarised into two categories of promises: the commercial and the legal terms. The first is the commercial terms, also called the ‘deal’ terms, and he gave the example of the office painting. Here, the terms are how much it will cost, what paint colour, what type of paint, the woodwork will be treated differently from the plaster, and so on. Then he spoke about the legal terms, also called the ‘safety net’ terms. An example is that if the painter causes damage to the office, then the term will state that the painter needs to pay for the rectification of the damage and possibly the loss of any profits. The painter will probably be obligated to hold a specific type of insurance to a particular value. The contractor would also like a safety net term; for example, what will happen if the customer does not pay?

 

Variations

 

The head reiterated there should only be one document representing the agreement. If any changes occur, these variations must be documented and kept together with the original agreement.

 

Express and implied terms

He also said a contract has two terms. The first is the express terms, which are clearly expressed and crucial for clarity and understanding. An example is to provide paint and paint x. The contract will also have implied terms, which are not expressed but are to give effect to the presumed intentions of the parties in a transaction when a contract's express terms have not fully anticipated the occurrence of events. He said that legislation had been introduced to make implied terms more transparent and accessible. He gave an example in the Australian Consumer Law where the goods and services must be ‘fit for purpose’. Thus, the painter will be subject to such an implied term.

 

Remedies

The mentee asked about remedies if a party does not comply with its contractual obligations. The Head stated that a breach ordinarily results in the defaulting party needing to pay the injured party a remedy, usually money. He said suppose the breach goes to the heart of the contract so that the original purpose can no longer be achieved. In that case, the remedy will be damages payable, the ability to walk away from the contract, or both at the injured party’s option.

 

Ending the contract

The Head said a contract usually ends when the parties deliver what they promised. For example, the office is painted, and the painters are paid. However, there are several other ways the contract can be ended, including the painter's death (assuming only one person was to do the work). Another reason is the impossibility of performance due to the building burning down.

 

Risk

He added that a contract is a risk mitigation device, as seen by the terms the College and painter sought in their agreements. He suggested that one must minimise as many risks as possible before signing the contract, as it is difficult and often costly to do so after signature. He stressed the word ‘before’, and mentioned General George Patton, the famous Allied World War II general, who said you need to take risks to achieve objectives but be sensible and only take calculated risks. The Dean said that is how he ran his faculty; he only took calculated risks.

 

The Head summarised that any organisation must buy and sell to operate, and the link between buyer and seller is the commercial contract. He counselled his mentee to understand the basics of contracting, including each party’s rights and obligations and how a contract is a risk mitigation device. He said that it is hazardous to enter contracts and not know what you have agreed to either because you have not read the agreement’s fine print or understood its terms or both.

 

Associate Professor Cyril Jankoff is the Associate Dean, Scholarship at UBSS and a member of the GCA Compliance Directorate