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 $1,000. (inclusive of GST)

A contract has three elements:

1. 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;
2. 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);
3. 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.

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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 direct commerce provisions of the Fair Trading Act and in limited circumstances when purchasing a motor vehicle.

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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.

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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.

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For information on receipts go to Receipts web page.

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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 Fair Trading Act 1987.

Section 53 of the Fair Trading Act 1987 relates to entering into contracts without intending, or being able to supply as ordered.  A trader may also be in breach of Section 42 of the Fair Trading Act 1987, for misleading or deceptive conduct in circumstances where it was not intended to supply as ordered.  For example, the delivery date was exaggerated in order to influence the client's decision to purchase and the supplier did not have reasonable grounds to believe it could deliver on that date.

Traders should ensure that:

• they have sufficient stock to meet the orders;
• they take into account possible delays in the distribution or manufacturing process before committing to a delivery date and accepting payment.

Where a trader has failed to supply goods or services and payment for goods was made by credit card, consumers may be entitled to seek a ‘chargeback’ from their credit card provider.

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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.

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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, the Office of Fair Trading can attempt resolution.  If unsuccessful, the consumer can go to the Consumer, Trader & Tenancy Tribunal.  People doing business with minors will often require someone (over 18) to guarantee that the minor fulfils their part of the bargain.

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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.

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Part 5 of the Fair Trading Act 1987 covers situations where consumers believe that they have been misled when purchasing goods and services.  When a person makes a representation and has no reasonable grounds for doing so, that representation is taken to be misleading (S.41 of the Fair Trading Act 1987).  A person must not engage in any misleading or deceptive conduct in trade or commerce (S.42 of the Fair Trading Act 1987).  Action can be brought against a person who does so.

Unconscionable conduct means acting without conscience; that is, in an unscrupulous or unprincipled manner. This is when conduct has the effect of placing one party at a serious disadvantage, such as where the stronger party has greater bargaining power and uses this unconscionably to take advantage of the weaker party. 

In determining whether conduct is unconscionable, the Court may have regard to matters such as:

• whether the relative bargaining strengths of the supplier and customer were unequal;
• there was a one sided contract with harsh clauses of which a customer was not made aware;
• the customer is unable to understand any of the documents involved;
• undue influence or pressure, or any unfair tactics were used.

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