A contract is a legally binding agreement between two or more people. Contracts can be oral or written. However, even for relatively straightforward arrangements, it’s a good idea to have a written contract, as it minimises misunderstandings and leads to fewer disputes. With an oral contract, it may be difficult to prove exactly what was agreed to, or even if a contract existed.
In some industries, written contracts are compulsory. For example, in the home building industry, a written contract is required between a builder and a customer for any job worth more than $5,000 (inclusive of GST).
A contract has three elements:
an offer – eg. this may be made when you decide to buy something and offer to pay a price. You may also offer to give something or do something in return
an acceptance – eg. this may be done by the seller agreeing to supply the goods or services. The acceptance may be in words or an action (eg. if you signed a written agreement accepting the terms and conditions)
consideration – this is the value (usually money) that is given in return for the goods or services offered to be supplied or acquired. It may also be the promise to pay at a later date after certain events occur or procedures are followed.
Consumers should be aware however, that payment of a deposit and/or signing any documents may well mean they have entered into a contract and are bound by the terms and conditions of that contract.
Be aware that despite what is in the contract, there may be terms and conditions outside the agreement that the law imposes. For example, it's no use having a clause saying 'no refunds' when the law actually gives people a non-excludable right to a refund under certain circumstances.
Before signing a contract the parties involved should:
- be sure they really want and know what they are signing for. If in doubt, take time to consider the contract carefully
- read every word - including the fine print
- seek legal advice if they don't understand the contract
- not be pressured into signing anything
- if necessary, take the contract home overnight and read it through
- never sign a contract that contains blank spaces
- make sure that all parties initial any changes that are made to the contract they sign
- always get a copy of any contract they sign.
Once a contract has been signed, neither party can change their mind – both parties are locked in. If either party still wishes to pull out of the contract before it is finished, they may end up paying a penalty (sometimes the full amount of the contract) or the other party may take them to court to recover their losses.
Some contracts may allow a party to 'opt out' or terminate the contract early, with or without a penalty. If either party wishes to have an opting-out clause in the contract, they should seek independent legal advice to make sure they are properly covered.
As mentioned earlier, a contract can be made without a party being aware of it. For example, a book store promising to obtain a book for a customer and taking a deposit from the customer is entering into a contract. By the book store accepting the deposit and the customer offering to pay the balance later, a contractual arrangement has been agreed to.
When can a contract be ended?
Once entered both parties are bound by the terms and conditions of that contract, together with the various laws relating to contracts.
Should one party end the contract or breach the terms and conditions, the other party may seek to recover any losses they incur as a result of that breach. Hence, if a consumer pays a deposit on goods and then changes their mind, the trader may be entitled to an amount of money to cover their reasonable costs.
There are limited circumstances when consumers may end an agreement without penalty and these can include:
- misrepresentation of the goods, services, terms or conditions;
- a cooling-off period is provided under the Australian Consumer Law.
As outlined above, consumers who breach a contract may incur costs to compensate the trader for
any losses they incur. In many instances, traders may be entitled to an amount to cover reasonable costs.
What are reasonable costs?
What is reasonable can vary with every contract. However, the law requires that both consumers and traders must take all reasonable steps to minimise any losses incurred as a result of a breach of agreement. For example, delays in repairing a vehicle may mean that a consumer has to arrange other transport. However, taxi fares may not be reasonable when other public transport is available or it would have been cheaper to hire a vehicle.
A receipt is a written record that a transaction took place. For both traders and consumers it is a way of verifying what took place in case a dispute occurs. For more information, visit the Proof of transaction page.
Delays in delivery and non-supply
Consumers are entitled to expect that stated delivery dates are honoured. If, for example, a lounge was purchased with the delivery date being a specified condition which influenced the consumer’s purchase, the consumer may be entitled to seek redress from the trader, such as a refund of a deposit in the event this condition was essential and was breached. If the trader, at the time the lounge suite was ordered was aware, or should have reasonably been aware, that the lounge could not be delivered as ordered, the trader may be in breach of the Australian Consumer Law (ACL).
The ACL states that it is unlawful to make false or misleading representations about the supply or possible supply of consumer goods or services. A supplier must not accept payment for goods or services they do not intend to supply, know they cannot supply or cannot supply in a timely manner.
Goods and services must be supplied in the time specified in the contract, or if a time has not been specified, within a reasonable time after accepting payment.
Chargeback is a refund facility available from credit card providers. It may be possible for a consumer to request a chargeback from their credit card provider in circumstances where goods or services that have been ordered have not been provided, yet have been charged to their credit card. A time limit may apply for the use of this facility. For further information regarding chargeback, consumers should contact their credit card provider.
Contracts with minors
The Minors (Property and Contracts) Act 1970 binds minors to contracts, leases and other transactions, where it can be shown the contract is for their benefit. It does not take into account parents' or guardian’s wishes as to whether or not the contract should have been formed. The minor would certainly not be bound by unfair and exploitative transactions, but they would probably be bound by ordinary transactions, freely chosen, in ordinary market conditions; eg renting a flat or buying something on credit.
If a minor believes an unfair or exploitative transaction has occurred, NSW Fair Trading can attempt resolution. If unsuccessful, the consumer can go to the NSW Civil and Administrative Tribunal. People doing business with minors will often require someone (over 18) to guarantee that the minor fulfils their part of the bargain.
Unfair contract terms
The ACL introduced national unfair contract terms, improving protection for consumers by removing unfair terms in standard form consumer contracts. Go to the Unfair contracts page for further information.
Loss or damage to consumer’s property
Traders must ensure that contracts are performed with all due care and skill. In the event the consumer’s property is lost or damaged, particularly if as a result of negligence on the part of the trader, the consumer may seek compensation to cover this loss.
Misleading or deceptive conduct
The ACL protects consumers from misleading or deceptive conduct. Business conduct is likely to break the law if it creates a misleading overall impression among the intended audience about the price, value or quality of consumer goods or services.
‘Conduct’ includes actions and statements, such as:
- any representation made by a person.
Whether a business intended to mislead or deceive is irrelevant; what matters is how their statements and actions - the 'business conduct' – could affect the thoughts and beliefs of a consumer.