We’ve seen many a question posted on legal forums that look like this: “I gave my brother $3,000 to buy a car and he promised to pay me back, but hasn’t. There is no contract. What should I do?”
Another example is, “I told John I would pay him $50.00 to mow my yard. He never told me he was going to do it. I hired someone else to do it. When they got there, the grass was already cut. What do I do?”
Contracts come in all shapes and sizes, and that includes those contracts that don’t appear to exist at all.
Oral contracts are contracts. They are just as valid as a written contract in most cases. Just because the parties didn’t write it down and sign it, doesn’t mean they didn’t intend for there to be a contract and it doesn’t mean that the parties aren’t acting as if there is a contract. It is always better to put it in writing.
But if you don’t, all hope is not lost. It just may be more difficult to prove the contract and the terms of the contract. In the example above, when did the brother promise to pay the money back? It is not obvious, but there may have been more to this discussion. Maybe he said that he would pay it back as soon as he got a job, which he now has.
Even with friends and family, write down your agreement and your intentions while everyone is inclined to do so. When people get in difficult situations, it is not so easy to communicate and the relationship can break down quickly. If someone is not willing to sign on the dotted line, then you probably shouldn’t go down this road.
Another type of unwritten contract is an implied contract. This occurs when the court finds that there is a contract between the parties so that one party isn’t put in a better position than they would have been otherwise.
In the above example, though John didn’t verbally communicate, he indicated his agreement to the contract by his conduct: mowing the lawn. If you don’t pay for the services, you will be getting the benefit of John’s services for free, otherwise known as unjust enrichment.
There are ten types of contracts in North Carolina that must be in writing. This is known as the Statute of Frauds.
Some examples are real estate contracts, leases for more than one year and contracts for the sale of goods that exceed $500.00.
Without a writing, you would be unable to enforce the contract if you believe the other party had breached its terms. Don’t make the mistake of not protecting your rights.
Consult an experienced attorney at Kurtz Law to find out if your contract needs to be in writing!
Generally, contracts do not have to be written down to be legally binding, although sometimes it can be harder to prove exactly what was agreed to in an oral contract.
Some contracts, however, are legally required to be in writing, including:
While a contract is not required to be in writing for it be enforceable, it may be advisable to have it in writing regardless. This may prevent or limit a dispute at a later time.
For example, if a contract is of special importance, involves a substantial sum of money, or if there is a possibility of a dispute about it in the future, it is wise to have a written agreement.
Some agreements will not be legally enforceable, even if written down and signed. These include agreements where there was no consideration, or agreements to do things that are illegal – see Illegal Contracts.
Page 2
With certain exceptions, anyone 18 years of age or over can enter into a contract.
People under 18
People under the age of 18 do not have the same full contracting power that adults do. They can still make contracts, but there are special rules.
In general, for a contract to be binding, the minor will have to affirm the contract, that is, agree to be bound by it after turning 18..
Some contracts are binding on the minor without the minor affirming them. For example:
Necessaries
A minor can make a legally binding contract forgoods or services that are usual or appropriate to their way of life (called necessaries). These will be such things as food, clothing, accommodation, medical care, school requirements or sporting goods appropriate to their age and their standard of living. A minor can also make a valid contract for services of instructional or educational benefit, which could include such things as music lessons, sports coaching, educational tutoring, etc.
Contracts which give the minor continuing legal obligations
These contracts are binding unless the minor chooses to opt out of the contract before, or reasonably soon after, they turn 18. Examples of these types of contracts are contracts of business partnership, or contracts to lease land. If the minor avoids the contract, they are only responsible for the obligations which have already arisen, not for any future ones. They cannot avoid past obligations or get back money they have paid out in respect of these. However, the minor may be able to get a court order for the return of their property, previously transferred under the contract, on fair terms.
Contracts made with the consent of a court
A minor may make a binding contract with theconsent of a court. The minor's parents can apply on the minor’s behalf, if the minor wishes to be bound; or the other party can apply, if they wants to make the contract enforceable against the minor. If the court decides to approve the contract, it will then be legally binding [Minors Contracts (Miscellaneous Provisions) Act 1979 (SA) s 6].
Guarantees
A minor's performance of a contract may beguaranteed. If the adult party to a contract wants greater security in contracting with a minor, they can ask the parents (or another adult) to guarantee the minor's performance of the contract. If the minor does not do as the contract requires, the other party has a separate right to sue the guarantors for any loss.
A person with a mental incapacity
A person with a mental incapacity will not necessarily be precluded from making or agreeing to a contract.
However, a contract involving a person with a mental incapacity will not be binding if it is set aside by a court. A court may set aside a contract in circumstances where the person with a mental incapacity was unable to understand the nature of the contract, or where the other party knew or should have realised this.
A contract where at least one party has a mental incapacity can still be binding in circumstances where:
- The other person did not or could not have known about the person’s incapacity; or
- Where a person has an incapacity,- if they were not affected by it at the time of making the contract; or
- Where a contract was made at a time when the person was affected by the incapacity – the goods or services they have subsequently received a benefit from are necessaries i.e. things reasonably necessary or appropriate to their way of life at the time.
Page 3
A contract will require each party to do something. Some of the requirements will be spelled out in the contract (called express terms), while others are never mentioned, but are still part of the agreement (called implied terms).
Some contract may also contain exclusion clauses which limit the liability or responsibility of one party for certain happenings.
Express Terms
Where the contract is written down and signed, both parties are bound to do what it says (subject to some exceptions). Where some terms are in writing but are not signed by the parties, they are only binding if the party concerned knew about them, or the other one at least took reasonable steps to bring them to their attention before the contract was made.
It is also possible for oral statements to form part of the contract.
Implied Terms
Sometimes terms which are never mentioned at all are still part of the contract. They may be implied by the circumstances. For instance, when a person visits their doctor, they probably do not discuss whether the doctor will agree to keep their medical details confidential, or whether they will have to pay the doctor's bill. The doctor is still legally bound to keep the patient’s confidence, and the patient is still legally bound to pay the bill.
Terms can also be automatically implied into a contract by law (i.e. by legislation or regulation), even if the parties do not know this. Most terms that are implied by the common law are now also stated in legislation such as the Sale of Goods Act 1895 (SA) and the Australian Consumer Law which provide for certain basic terms to be part of the contract. These terms are known as statute implied terms.
When a term is implied by legislation, the Act will also say whether the parties have a choice to exclude that term. If it says that they cannot do that, then the term will still be part of the contract, even if both parties agree that it will not apply. For example, the parties cannot agree that the Australian Consumer Law will not apply to them. Such an agreement would have no effect.
Exclusion clauses
Exclusion clauses are clauses, usually written down, that say that one party to the contract will not be responsible for certain happenings.
These clauses can be valid as long as:
- they have been properly included in the contract; and
- are not contrary to law.
To be properly included in the contract, the clause cannot be tacked on after the contract has been made. If there is a signed contract containing the clause, this will usually have the effect of including it. If there is no signed contract, but there are printed documents or signs posted stating the terms, these can be included in the contract if they are brought to a person’s attention before the contract is made.
The exclusion also has to be legal. For example, there are some important obligations to a consumer that are placed on a trader and these are implied by statute into consumer contracts and cannot be excluded, see: Statutory Guarantees.
Courts often give exclusion clauses the narrowest reading possible.
An exclusion clause will generally not cover a breach which occurs outside the 'four corners' of a contract, such as where a trader does something that was not authorised by the contract.
Where a trader has attempted to limit or exclude liability of an implied term a consumer should seek legal advice as the law on this point is both complex and uncertain.
Page 4
Generally, yes. This is true even if they did not read the contract, or were unsure what it meant.
To be safe, a person should never sign a contract unless they have read it, fully understand it, and want to be legally bound to do what it says.
If they are not sure, they should get legal advice before signing. Once a contract is signed, the other party can initiate court proceedings to seek performance of the contract, or damages if the contract is breached.
However, there can be exceptional cases where a person is not bound, even though they have signed.
Cooling-off periods
In some contracts, such as those to buy land, door-to-door sales contracts, and contracts to enter a retirement village, the law provides for a cooling-off period which allows a person to reconsider after signing a contract. During the cooling-off period they can legally opt out of the contract. This only applies to specific types of contracts, not to all.
If a cooling-off period applies, a person should receive a notice of their cooling-off rights at the time of signing. Often only a short time is allowed, sometimes only a few days. If a person wishes to exercise their rights to cool-off, they must give the other party written notice advising them as such, or must follow any other legal requirements that apply in relation to cooling-off for that particular type of contract.
Misleading conduct misrepresentation
If the other person, or someone on their behalf, gave a false impression about the nature of the document they were signing, or the terms in it, the parties may not be bound by the document. However, this can be hard to establish if the document itself clearly tells the person what the true situation was - see Misrepresentation.
Implied or explicit conduct
If it should have been obvious to the other party from a person’s conduct when they signed that they had no idea of the real nature of the document, for example, because they are unable to read, or it was written in a foreign language, they may not be bound. However, this defence is not available just because the person was not careful and did not read the contract. It must be shown that, for example, through the person's illiteracy or poor vision the document signed was radically different in practical effect from the document the person believed she or he was signing.
Even where grounds exist to rescind a contract, courts can be reluctant to set aside the transaction if it would affect people other than the parties themselves.
Agreement not to be bound
It is also possible for the parties to a contract to agree not to go ahead with it. Even after signing, if both sides agree that they do not want to go ahead as promised, they can agree to let each other out of the contract. If an agreement not to be bound is reached, it is prudent to have this recorded in writing.
Page 5
Misrepresentation is the giving of false information by one party (or their agent) to the other before the contract is made, which induces them to make the contract. If a person makes a contract in reliance on a misrepresentation and suffer loss as a result, they can cancel the contract or claim damages.
The false statement must be one of fact, as opposed to a statement of opinion or a promise. For example, a seller saying that their property is worth $150 000 is expressing an opinion, but a seller saying that they paid $150 000 for it is making a statement of fact. A promise cannot be a misrepresentation because the statement made is about the future, and cannot be true or false at the moment it is made. Some factual statements in advertisements, such as 'this vehicle is equipped with passenger airbags and ABS braking' are statements of fact and can be misrepresentations if false.
Some latitude is allowed to people selling privately to make statements commending an article in order to arouse interest in potential buyers. Rather than relying on the seller's statements, a person should carefully inspect the item themselves, and if necessary, have an expert examine, test or value it prior to purchase.
A misrepresentation is innocent where a trader believes that the statement they are making is true and consequently has no intention to deceive the buyer. It is fraudulent where the trader makes the statement knowing it to be false or without believing in its truth, or without caring whether it is true or false. In that case, the trader may be guilty of the offence of fraud as well as misrepresentation.
Disputes often arise over whether a misrepresentation has occurred and the nature and extent of that misrepresentation. Legal advice should be sought in these circumstances.
It is a defence to misrepresentation if the person making the statement can show that they believed on reasonable grounds that it was true, or that someone else made the statement and they had no reason to know that it was made, or was not true.
If a misrepresentation is relied upon in entering a contract, a person can:
- seek to rescind (cancel) the contract; or
- sue for damages to compensate for any loss.
Rescinding a contract
It is important to attempt to rescind the contract as promptly as possible once a misrepresentation is discovered. The right to rescind may be lost if a person waits too long to seek to rescind it. The right can also be lost if:
- the person trying to rescind the contract has in some way acted unfairly; or
- the person trying to rescind the contract knows of the misrepresentation and of the entitlement to rescind, but does something which shows that they still want to continue with the contract; or
- a party to the contract cannot be restored to substantially to the position they were in before the contract was made, for example, if the goods have been used or damaged; or
- a person who is not a party to the contract has obtained some right over the goods and would suffer if the contract were set aside.
A contract can be rescinded by one party advising the other party. If the contract deals with goods, the goods should be returned in good condition. If the other party accepts this, the contract ends. However, if the other party still wants to go on with the contract, there may be a dispute which could result in court proceedings.
Damages
As an alternative to rescission, a person can sue for damages as a result of relying upon a misrepresentation. The court will consider whether the statement was a misrepresentation, whether it was relied upon in entering the contract, and whether loss has been sustained. The person accused of misrepresentation may not be ordered to pay damages if they can prove either of the following:
- that they had reasonable grounds to believe and did believe the statement was true; or
- that someone else made the statement, for example an employee, and the person did not know and could not reasonably be expected to know that the representation had been made or that it was untrue.
Page 6
As a contract will require each party to do something (called the performance required by the contract) a breach of contract occurs where at least one party fail to perform their obligations according to the terms of the contract. Performance may relate to both the actions required of each party, and the time frame required for such actions.
Where a party has failed to perform their obligations according to the contract, the other party may assert that a breach of contract has occurred. Where one party is asserting a breach, this should be communicated to the other party as soon as practicable after the breach has become known. The other party may respond in a number of different ways to the alleged breach:
- they may acknowledge the breach and try to remedy it;
- they may dispute that a breach has occurred;
- they may argue that there is an exclusion clause or other term in the contract limiting their liability for the breach; or
- they may argue that there is an excuse for their breach, or that the contract is invalid.
Where a breach of contract is established, the aggrieved party may have the right to terminate the contract and/or seek a remedy - see Remedies for Breach of Contract. The right to terminate the contract may not always apply for every breach that occurs.
Where a breach of contract is disputed, the aggrieved party may need to take further action to resolve the dispute, such as commencing court proceedings.
Page 7
Legal Help for all South Australians
Where a breach of contract has occurred, the parties can seek to:
- resolve the matter between themselves;
- terminate the contract;
- agree for damages to be paid to the innocent party;
- agree for specific performance of the contract to occur.
In the event the parties cannot agree on any course of action, a court application may have to be made. Not all of the above options may be appropriate depending on the circumstances of what has occurred. Depending on the breach, the court can make orders relating to the termination or performance of the contract, or regarding the entitlement to, and quantum of, damages payable to the innocent party.
Resolving the matter between the parties
Remedies for Breach of Contract : Last Revised: Fri Oct 12th 2018
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.