“A verbal contract is not worth the paper it is written on” – or is it?

This article provides some basic information about contract law and is based on the webinar that I delivered to members of the Australian Timber Flooring Association (“ATFA”) members recently. The information contained in the article was written specifically for those retailers, discusses general principles only and shouldn’t be relied on as being relevant to you. If you require any advice concerning your own situation please contact me or one of my team.

 

Is there a contract?

  • contracts may be written, oral, or contain a combination of written AND oral terms;
  • there is often considerable difficulty proving terms which are agreed orally, especially if a dispute ends up in a court or tribunal hearing where the existence of oral terms can often only be proven by evidence given by witnesses in a witness box and subject to cross examination by the other side’s solicitor or barrister;
  • the logical conclusion – you should rely on written terms of a contract and not any oral agreement. If you’re going to change the terms of any standard written contract – do so only in writing NOT by using or relying on phrases such as “she’ll be right”, “oh we won’t be relying on that”, “ignore that bit”, “you know what we mean **wink, wink, nudge, nudge**” et cetera;

Elements of a contract

  • all of these elements are strictly required and have been for a very long time:
    • offer (e.g. a catalogue containing a price is an offer to sell at that price);
    • acceptance (e.g. the placement of a purchase order contains acceptance of your offer to supply at a known price);
    • communication of acceptance (e.g. if a customer takes your standard contract home with them and signs it, but never gives it to you, there is no contract that they can rely upon);
    • consideration which is the price stipulated by you and paid to you by the purchaser in exchange for your goods;

And if a contract is breached?

  • the innocent party (i.e. who hasn’t breached the contract) could seek the following:
    • damages – which is a sum of money designed to put them in the position they would have been in had the contract had not been breached, in other words to compensate them for losses;
    • specific performance – which is an order or direction by a court or tribunal that the party who has breached the contract has to perform their end of the bargain;
    • an injunction – which can be used to prevent ongoing breaches (e.g. you are ordered to cease trading in breach of a non-competition clause in a franchise contract);

When to get advice

  • Solicitors are not cheap and therefore you should limit legal involvement where possible, especially concerning standard contracts. My suggestion as to when to seek legal advice:
    • when drafting a:
      • standard employment contract, if you use one; or a
      • standard contract with installers and customers;
    • contracts involving high-value transactions, especially if the deal proposed contains some unusual terms, or terms you are uncertain about;
    • if you are being sued, or if it someone is threatening to sue you and there is a significant amount of money involved;
    • franchise agreements, partnership agreements, shareholders agreements or any other agreement that is proposed to you which is significant to your future business arrangements; and
    • contracts for the purchase or sale of land (in accordance with the usual practice in your state) or other significant asset.

 

If in doubt – don’t be a “bush lawyer”!

Seek legal advice and know where you stand.

 

This article appeared in issue 28 of “Timber Floors” magazine published by ATFA in February 2015.

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