What is a Contract?
A contract can be either a written or verbal voluntary agreement between two or more parties. A contract is legally binding, and therefore enforceable. We say voluntary because you do not have to agree to anything that you do not fully approve of, fully understand or feel comfortable with. The following are examples of common contracts and therefore, once entered into are legally binding:
Retail and Commercial Leases
Business Purchase or Franchise
Finance or Credit Agreement
Terms of Trade
For a contract to be valid the following requirements must be met:
Offer: the promise to either do or not do something in exchange for something else. For example, person A offers to provide a product to person B, if person B pays X amount of money. This is where a counter-offer can also be made, that is where the person being offered something, responds with another offer.
Acceptance: is exactly as it sounds! The other party agrees to the proposed offer. This can occur either verbally, by signing a contract, paying for an item, or checking the “I agree” box on a website.
Consideration: is the price for a promise. Consideration is required for an agreement to be legally binding at common law.
Intention to be legally binding: consideration is generally proof of this, however it is a requirement on its own for reasons too complex for this brief overview.
Capacity: all parties in the contract must have the ability to enter into an agreement, that is they are not a minor, they have no mental disabilities such as dementia, are not under the affects of drugs or alcohol, are not vulnerable, and they are considered to be in a state of understanding.
Contracts and the Law
As stated above, contracts are voluntary. Therefore, it is generally illegal under Australian Consumer law and Contract Law for one party to force or intimidate the other party into entering the contract.
All contracts have terms and conditions which discuss the rights and responsibilities for all parties. It is important that you fully understand these before accepting the contract, because once accepted they are legally binding and ignorance of these will not help you in court. If you don’t understand any part of a contract offered to you, you should seek legal advice before accepting the offer. Only in limited instances (without going into too much detail on contract law) can a contract be terminated without penalty, for example if there was misrepresentation in the contract or there is a cooling-off period.
Single use contracts, that is ones that are created for a specific relationship or agreement, are usually negotiable as they are meant to be a mutually beneficial agreement. However, there are many contracts that are used by one party for use with many parties, for example a car sales contract. These are often non-negotiable and accordingly, there are unfair contract laws in place that offer protection to consumers when they are party to such contracts. However, terms about the price and product or service definition are not covered by these laws.
In order to protect yourself and your business from unfair contracts, it is important to clearly understand what the contract is stating. It is a good idea to have a legal professional review complex and multifaceted contracts prior to signing, to ensure that your rights are protected.