A contract is a legally binding agreement between two or more people. Contracts can be verbal or written. No matter how straightforward an agreement is, it is a good idea to have a written contract, as it decreases the chance of misunderstandings and leads to fewer disputes. When an agreement is verbal, it may be difficult to prove exactly what was agreed to, or prove that a contract existed.
A contract can also be made without a party being aware of it. For example, a bookstore that orders in a book and takes a deposit from a customer is entering into a contract to supply the customer with the promised book. By the book store accepting the deposit and the customer offering to pay the balance later, they have agreed to a contractual arrangement.
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 $1000 (inclusive of GST).
A contract has three elements:
- an offer – 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 – 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.
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.
When can a contract be ended?
Generally, 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.
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. For example, 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 after taking all reasonable steps to minimise any losses incurred as a result of the breach.
There are however limited circumstances when consumers may end an agreement without penalty and these can include:
- misrepresentation of the goods, services, terms or conditions
- during a cooling-off period provided under the Australian Consumer LAw (ACL).
Contracts with minors
The Minors (Property and Contracts) Act 1970 (NSW) 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 Consumer, Trader and Tenancy Tribunal. People doing business with minors will often require someone (over 18) to guarantee that the minor fulfils their part of the bargain.