Contracts

What is a contract?

A contract is a legally binding agreement between two or more people. Contracts can be oral or written but 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:

  1. an offer – this is 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 – this is done when the seller agrees 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 can also be the promise to pay at a later date after certain events occur or procedures are followed.

You should be aware that payment of a deposit and/or signing any documents might mean you have entered into a contract and are bound by the terms and conditions of that contract.

Also, be aware that despite what’s 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, everyone 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 wants to pull out of the contract before it’s 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 allow a party to 'opt out' or terminate the contract early, with or without a penalty. If either party wants an opt-out clause in the contract, they should get independent legal advice to make sure they are properly covered.

When can a contract be ended?

Everyone involved is bound by the terms and conditions of that contract. If one party ends the contract or breaches the terms and conditions, the other party can recover any losses they incur as a result of that breach. 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.

Damages

Consumers who breach a contract might have to compensate a business for any loss they incur. In many instances, businesses are entitled to an amount to cover reasonable costs.

What are reasonable costs?

What is reasonable can vary with every contract. The law requires that both consumers and businesses take all reasonable steps to minimise any losses incurred as a result of a breach of agreement.

Receipts

A receipt is a written record that a transaction took place. Go to the proof of transaction page for more information.

Delays in delivery and non-supply

Before buying an item, make sure you know the expected delivery time. 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

Chargeback is a refund facility available from credit card providers.  You might be able to request a chargeback from your credit card provider when goods or services have been ordered but not been provided, yet you’ve been charged.  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 more 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:

  • advertisements
  • promotions
  • quotations
  • statements
  • 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.

Go to the Misleading or deceptive conduct page for more information.

Information for businesses

A contract is a legally binding agreement between you and your customer or between you and another business. Contracts can be oral but you should 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 that a contract existed.

In some industries, written contracts are compulsory like the home building industry.

Whether the contract is oral or written, you may have certain obligations and rights under certain consumer laws. Disputes can occur over even the simplest of agreements and can drag on because nobody has anything in writing.

Business to business contracts

Before you sign a contract you should:

  • be sure you really want and know what you are signing for. If in doubt, take time to consider the contract carefully
  • read every word – including the fine print
  • seek legal advice if you 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 you and the seller/buyer initial any changes you may make to the contract
  • always get a copy of any contract you sign.

Once you sign a contract, you are locked in. If you want to pull out of the contract before it’s finished, you may end up paying a penalty (sometimes the full amount of the contract) or you could be taken to court to compensate loss.

Some contracts may allow you to 'opt-out' or terminate your contract early, with or without a penalty. If you want an opt-out clause in the contract, you should get independent legal advice to make sure you are properly covered.

Unfair contract terms

Consumers and small businesses are protected by law from unfair contract terms. Go to the unfair contract terms page for more information.

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