What is a contract?

A contract is a legally binding agreement between two or more persons. For example, if you purchase any goods; if you engage a builder to carry out work on your house; if you enter into a credit sale or other credit agreement; if you order goods or machinery from a manufacturer, these are all types of contracts.

The law of contracts is vital to the law which affects consumers. It is a complex area and is governed both by the "general law" – that is, laws which have evolved from decisions made over the years by Judges in relation to contract disputes, and secondly, "legislation" or "statutory law" – laws introduced by government. Examples of these types of statutory laws are the Trade Practices Act, the Fair Trading Act, Consumer Credit Code and the Contracts Review Act.

Who can make a contract?

In New South Wales a person is able to make a contract when he or she reaches 18 years of age. However, there may be circumstances when a person who is less than 18 will be bound by a contract into which he or she has entered. Basically it depends on the type of contract and the degree of understanding that the person had about the contract.

In certain circumstances a person who is mentally ill or intellectually disabled at the time may not be bound by a contract entered into.

What makes a contract?

A contract involves certain basic elements. They are:

• Agreement (by which there is an offer and an acceptance).
• Consideration – an exchange of some benefit or something of value by the parties. For example a party pays a sum of money for goods supplied by another party, or money is paid for work carried out by the other party.
• An intention to enter into legal relations – that is, the parties intended to enter into a legally binding agreement. (Although this is often not specifically stated, it is usually implied.)
• The parties must also have the legal capacity to enter into a contract, for example, as discussed above, in relation to age and mental capacity.

Deciding terms

Generally the terms of a contract are for the parties to decide. However, the law may "imply" terms into the contract. For example, there is an implied term that goods are sold for a particular purpose (for example, that a machine which is sold as a food processor does in fact "process" food). Some of these terms are implied in the Sale of Goods Act.

Under the New South Wales Contracts Review Act the terms of a contract may be altered or disregarded if they are unjust or result from duress or unequal bargaining power. However the courts do not try to draw up contracts for parties.

Unjust contracts

The Contracts Review Act describes an unjust contract as one that is unconscionable, harsh or oppressive. It applies to contracts in connection with land, goods or services for personal use but not if the contract was entered into in the course of a trade, business or profession.

For instance, an unjust contract could be one where one party has been tricked or pressured by the other, or where a person has been encouraged to enter a contract by another party who was aware of the person’s inability to understand the terms of the contract.

Some of the things a court will look at when deciding if a contract is unjust or harsh include unequal bargaining positions of the parties; unreasonable or difficult-to-comply-with conditions in the contract; the opportunity the parties had to obtain independent legal advice.

If you think you are the victim of an unjust or harsh contract, discuss the matter with your solicitor or find out if you have a case under the Contracts Review Act.

Written contracts

Generally, contracts do not have to be in writing, but there are particular cases when the contract must be in writing for it to be binding, for example the sale of a house, guarantees and credit sale or other credit agreements.

However it is usually better to have the details of an agreement and any variation in writing so both parties have a record of what has been agreed and are aware of what they are obliged to do, particularly when money is involved.

Unread clauses

If you sign a written contract then generally you are bound by all of its terms even if you did not read or understand them.

There are various types of contracts which you may come across in everyday life which do not require your signature, for example a parking ticket or a dry cleaning docket which has clauses printed on the back. Generally the rule is that you are bound by the clauses if you have read them or if you knew they were there but did not bother to read them, or if the other person took reasonable steps to draw them to your attention.

It is therefore extremely important that you read all the terms of a contract before you enter into it. You should not sign any document until you are fully aware of what its terms and conditions are and what they mean.

Broken contracts

Once you make a contract you will be committing a breach if you do not comply with its terms, or if you change your mind and decide not to go ahead with the contract.

If a party breaches a contract there are a number of remedies available, including:

• Damages (a sum of money) to compensate the "innocent" party for any loss suffered;
• A Court Order requiring the party who has breached the contract to carry out his/her obligations to perform the contract;
• An Order from the Court forbidding the party from breaching the contract; and
• An Order from the Court declaring that the contract is at an end and requiring the party who has breached the contract to put the "innocent" party in the position he/she was in before the contract was entered into. This may involve the payment of damages.

The type of remedy and its availability would depend very much on the type of contract and the type of breach. Martin Bullock Lawyers can advise you as to the best means of dealing with the problem.

How can we help?

Martin Bullock Lawyers can:

• Explain the terms of a contract and advise you as to your rights and obligations under that contract;
• Advise you as to the consequences of entering into a contract before you commit yourself to it;
• Discuss the contract with the other party or his/her solicitor so that terms which might disadvantage you may be altered or removed;
• Take instructions to prepare a contract for you to enter into with another party;
• Advise and assist you if the other party breaches the contract;
• Advise and assist you if you are accused of breaching a contract.

For further legal advice, contact Martin Bullock Lawyers for cost effective and reliable solutions to your legal problems.