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Legally Binding Contracts: What You Need To Know

Legally Binding Contracts: What You Need To Know

by | Mar 11, 2021 | Contracts, Employment, Law for Online Business, Legal, Service Agreements, Website Terms

Legally Binding Contracts: What You Need To Know

LEGALLY BINDING CONTRACTS: WHAT YOU NEED TO KNOW

There is no doubt that running a business has risks. These risks may come from your employees, your contractors, your suppliers or customers.

As a business owner, you need to take control of your business by assessing these risks and determining how to reduce these risks. One of the best ways to protect your business is to understand contracts. The terms and conditions on your website document the contract between you and every user of your website. If you don’t have any written terms and conditions, you are guessing about the agreement you have with your website users. 

When you sell your product or services, you need a written sales contract to be certain that you are protecting your interests. If you operate an online platform to market or sell your products or services, you need a contract for use of your website (usually terms and conditions). Or, if you want to protect your confidential information such as your client list and trade secrets, then you need a confidentiality deed.

Contracts are an essential part of all businesses as they form the basis of the majority of business relationships and transactions. It is, therefore, crucial for you to know when you do and do not have a binding contract. A binding contract is something that is legally enforceable. So for example, having fun with your friends in a pub is not going to be a binding contract, it’s going to be a bit of a joke and a bit of fun. In order to get a binding contract, you have to have all of the essential terms agreed and an intent to create legal relations. You also need to be able to give evidence of the terms of the agreement.

CASE STUDY

We recently had a client who entered into a contra deal with another service provider, each expecting to complete between $3,000 – $5,000 of work for the other party. Our client wasn’t able to, or wasn’t prepared to trawl through historical emails to specify the details of what they had committed to provide, and they had not invoiced periodically. (An invoice with a credit applied can assist in evidencing that an agreement was made.)

The other party provided a written engagement for services and invoiced regularly. After 12 months, the other party claimed they had received nothing from our client and took legal action to seek payment in full of their invoices. Because our client was not organised, wasn’t able to specify the agreement made or clearly identify the work produced, they ended up in a position of having to either invest in legal services to defend a court matter, or compromise the claim and pay the other party.

A bitter pill to swallow!

For a contract to be legally binding in Australia, it must contain at least the following elements:

 

1. offer

A contract is essentially a promise between people to do or not do certain things, and it starts with an offer.

An offer must be clear, unambiguous, and contain the essential terms that are to be agreed upon between the parties. That might include the parties to be involved in the contract, the timing of the contract, payment terms under the contract, and any other essential terms necessary to make sense of the purpose of the contract.

When you communicate to another person your promise, you are making an offer. For example, if you promote your services in three different packages on your website, then you are making an offer to each person who views that webpage.

When thinking about business contracts, a company that prepares a proposal is making an offer. If the business looking at that proposal accepts it, that is the first step toward a binding contract, but if they come back and says, “we want something different,” then that offer no longer stands as the offer It’s a counteroffer and the counteroffer takes the place of the original offer.

This will go on until the parties reach a point where there is an offer that is capable of being accepted, and that’s where you get acceptance.

 

2. acceptance

There must also be acceptance of the offer through a clear statement or conduct in response to the offer. Acceptance can be evidenced in a variety of ways, so it could simply be an email, a telephone conversation, or the signing of a formal written contract.

For online services, acceptance will be when your customer clicks on that button that says, ‘Buy Now’. That is accepting the offer that has been made available on the website.

Contracts are commonly accepted by signature, or by checking a box next to a statement that says you agree to the terms and conditions.  Many contracts are binding without a signature, but not all contracts can be legally binding without being signed. Contracts for the sale of land must be in writing and signed. Wills must also be in writing and signed to be enforceable without needing court intervention.

A form of signature is preferred because even if the parties did not read the contract before signing it, their signatures indicate that they have read and understood and are bound by the terms.

However, this does not mean that if your contract is not signed, it is not valid and therefore not enforceable. Parties can also accept the contract terms through their conduct or other circumstances. It all depends on the circumstances and intention exhibited by the parties. As long as it has been sufficiently communicated, it will be valid acceptance.

For example, completing work referred to in the contract signals acceptance of the contract terms, and that person will be entitled to seek payment under the contract.

A counteroffer is not acceptance, it is a new offer that needs acceptance.

 

3. consideration

A person must give some value in return for a promise to create a legally binding contract. In other words, each party must receive a benefit.  The most common form of consideration is payment in exchange for goods or services.

With the online example, you’ve clicked the ‘Buy Now’ button. The consideration is the payment of money, and as soon as that consideration has passed, there is a binding contract in place.

Using the example of a proposal, once the terms of the proposal are agreed and accepted by one party, either the payment of money or the start of work or both, will be consideration. The essential terms of the contract must be agreed before the point of consideration to be binding.

So, if you ask a client to pay first and then give them terms and conditions after payment, then the terms and conditions won’t be binding because the consideration has occurred before those elements of the contract are agreed. This can be different where a deposit is conditional upon certain terms being accepted.

Terms and conditions of a contract given to a purchaser only after the contract was formed will not be binding.

 

4. Intent to create legal relations

As entertaining as it might be to dare a friend in a pub to do something, if they do it, your payment to them is only enforceable based on your goodwill and is not legally enforceable.

This is different to a restaurant promising that a huge meal is free if you can eat it all. That can be enforceable because the restaurant intends people to rely upon that promise in ordering the meal in the first place.

    other elements of a binding contract

    Aspects of contracts that can affect whether or not a contract is binding include capacity, mistake, illegal intent, fraud, misrepresentation, duress or no intent to create a legal contract.

     

    capacity

    Capacity is whether somebody has the legal capacity to make a contract. Only an adult can enter into a contract; that is somebody over the age of 18 years. A person under 18 years does not have legal capacity to form a binding contract.

    A person with a disability or an older person who has lost capacity through dementia or Alzheimer’s disease may not have capacity to make a contract, or may have only intermittent capacity.

     

    mistake

    A mistake in a contract can sometimes invalidate a contract. Typographical errors are generally not fatal mistakes.

    Usually, a party will be bound by the documents they signed, whether or not they’ve read or understood them. However, where a party signs a contract that they fundamentally believe to be something different to what it is, this may be a mistake sufficient to affect the binding nature of the contract. For example, if a person believes that they are purchasing a copyright work (say a painting) where in fact, what they’re signing is only a limited license to use that copyright work for a limited purpose (hanging  the painting in their office). In those circumstances, there is quite a significant difference between what the first person understands they are paying for, and what they are actually getting under the contract.

    That may give rise to a doctrine of what’s called a non est factum, which means, ‘it’s not my deed’ or ‘it’s not my contract’ or ‘I didn’t agree to this’. It is very rare to argue this type of mistake.

    There are other types of mistakes, for example, one party could be mistaken about what it is they are buying. A party might think they are buying a website with all the existing content and so on, where in fact, what they’ve done is entered into a contract to buy a domain name.

    Now, it is likely that the seller in that circumstance knows that they are only selling a domain name and they probably have a level of awareness that the purchaser is mistaken as to what they are actually getting.

    In those circumstances the purchaser may not be able to end the contract, there might not be a remedy under contract law or common law, but there may be a remedy in equity. In equity, the party who knew the other party was mistaken as to what was involved in the contract, may be required to allow the other party to revoke the contract or to have rectification of the contract.

    Rectification is amendment to the contract to make it reflect what was understood to be the terms of the contract. Occasionally, both parties to a contract have mistaken some aspect of the contract, but different aspects.

    There have been some recent cases in Queensland regarding property development, where two parties to a development contract had different understandings of different aspects of the contract and they were ventilated when it went to court. Again, it is rare to have a circumstance where there is a unilateral mistake by both parties about different issues to the contract.

    A common mistake is where both parties are mistaken about something to do with the contract. A good example is where both parties think a description of a property refers to a visual address they agree upon, only to find in a property title search that the property they thought they were transacting is the property next door.

    For online content, the contracting parties might both think that the website is built with a particular programming language, for example, HTML, when it is built on a different system or with different programming language.

    Where there is common mistake, all party’s expectations around the contract are altered because something has risen that none of them were aware of when they first went into the contract. Again, the remedy is more likely to be an equity in terms of a rescission of contract or rectification of the contract, rather than a specific ability to terminate the contract. However, if all parties are mistaken and they have a mutual agreement to end the contract, then that is not a problem at all. It is only a problem when the parties are in dispute.

     

    illegal purpose

    Another aspect that will affect the binding nature or enforceability of a contract is whether or not it’s for an illegal purpose. A contract for the purpose of committing a crime is not enforceable. There are differences in criminal law in the different states and territories of Australia.  There are also proposed changes around Australia regarding slavery laws at the moment.

    Consider modern slavery, such as people immigrating from overseas and then having their passports taken from them and essentially going into indentured labor services. An offer to find work for someone in exchange for their payment to get help in immigrating will not be enforceable if it results in indentured labor.

     

    fraud or misrepresentation

    If there is misrepresentation or fraud before the contract is made, which influences one party to enter into the contract, then the contract may be challenged. Fraud is a deliberate untruth that can be relied upon to void a contract. Misrepresentation is something less.

    Consider an IT Service Provider. They say that they will be able to provide you a secure computer system and a phone system (being very simplistic, obviously), for a set monthly fee and an installation cost. Then you find out halfway through installation that it simply will not work with your existing systems, unless additional products or services are purchased, or there is some variation to what needs to be done.

    This may be misrepresentation, particularly if you have asked the service provider to review what your requirements are and tender on that basis, then you have accepted the tender and they can’t deliver what they said they would deliver. A remedy for misrepresentation is likely to be damages.

     

    duress

    Coercive control is a form of domestic violence that is very topical at the moment, and difficult for the legal system to articulate. Duress or coercive control is putting someone in a position where they feel they have no choice but to enter into the agreement.

    In a business situation, holding up payment pending an agreement can be a form of duress if the party withholding payment knows that it will have an adverse effect on the party due to be paid, and they intend to use that as leverage for future negotiations. It is effectively holding the company that is owed money to ransom for money it is already owed.

    Although the creditor company might have remedies in terms of taking the debtor to court for recovery of payment, the time involved in recovering that payment may be sufficient to effectively put the creditor out of business without the payment due being received.

    A threat can also form duress, unless there is a term of the contract that was agreed which supports it. “If you don’t sack that person, we will terminate this contract” is a threat unless the contract includes a provision that you can require the contractor to replace people if you are not happy with them.

     

    spoken contracts, or partly spoken and partly written

    An oral contract can also be valid and enforceable. A contract can be partly written, partly verbal and partly included in an exchange of emails. [https://onyx.legal/articles/contract-dont-have-to-be-in-writing/]

    For this reason, you need to be aware of when you’re making promises to other people and when you might be creating binding contracts, whether you intended to or not. Having a formally written contract with signatures on it is proof of the contract that was agreed. The documentation is not what is required to make it binding.

    Evidence obviously becomes an issue when contracts are oral. That is when disputes end up in courts, with different people claiming perfect, and differing, recollection of what was agreed.

     

    contracts and deeds are different things

    There is a difference between deeds and contracts. Contracts need consideration, which is the doing or giving of something in exchange for understanding that the other party to the contract or the other parties to the contract have obligations that they will fulfill in exchange.

    A deed is binding without consideration, and as a result, there are specific rules around the signing of a deed before it can become binding.  

     

    remedies

    Once a contract is formed, the nature of the remedy depends upon the nature of the problem in the contract and can include a variety of remedies from voiding the contract from the beginning through to payment of damages, specific performance, damages for losses occurring within the contract and so on. These all depend on the terms of the contract agreed between the parties.

    Want more information?

    We love writing contracts. Especially contracts you understand, so that your customers understand them too. Keep it simple. Let us know what contracts you would like to put in place in your business by booking an appointment. 

    Make an Appointment

    Witnessing a Signature: What You Need to Know

    Witnessing a Signature: What You Need to Know

    by | Feb 10, 2021 | Contracts, Law for Online Business, Legal, Service Agreements

    Witnessing a Signature: What You Need to Know

    WITNESSING A SIGNATURE: WHAT YOU NEED TO KNOW

    Getting a document signed is all about proof. It is a lot easier to show that someone has agreed to a contract if you can show that they applied their signature to that document, and a witness helps to identify the person signing.

    Most legal documents do not have to be witnessed. A commercial agreement between businesses does not need to be witnessed to be binding.

    For documents that do need a witness, different rules apply as to what type of witness is required, and how they are to do the witnessing. By watching you place your signature on the document and signing their own name next to yours, witnesses help verify the authenticity of your signature and help prove that it was signed willingly.

    Signing a document is also called ‘executing’ a document and often you will see that the signing page is called the ‘execution page’. In this usage, ‘execution’ is used in a manner similar to ‘performance’ or ‘giving effect to’ an agreement.

    Before we start, it is important for you to first understand the difference between a company and an individual when it comes to signing documents.

     

    COMPANIES VS INDIVIDUALS

    In most cases, when a company executes a document, no witnesses are required.

    Under s.127 of the Corporations Act 2001, a company without common seal can execute a document by having it signed by 2 directors, or a director and company secretary, or the sole director and secretary of a proprietary company. Their signatures do not need to be witnessed.

    For a company with common seal, the fixing of the seal must be witnessed by 2 directors, or a director and company secretary, or the sole director and company secretary of a proprietary company. An independent witness is not required.

    Most companies no longer use a common seal.

    Be aware also, that even if the document is not signed in accordance with s.127, the signature may still be binding; the parties simply can’t rely upon the provisions of s.127. It does not invalidate the signature.

    This is not the case for individuals.

    Depending on the type of document, the law sets out different requirements for an individual’s signature to be witnessed. Not all documents require witnessing. Examples of documents that do need witnessing include affidavits, statutory declarations, deeds, Wills and powers of attorney.

    Who can be a witness also depends on the type of document. Sometimes it can be any independent party, and sometimes it must be an ‘eligible witness’ who hold specific qualifications.

    We will discuss these different requirements below, using Queensland legislation as an example.

    Regardless of whether signed by a company or an individual, when a document is signed, whether read or not, or understood or not, the signing party is bound. This principal was reiterated by the Australian High Court in the case of Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52, after reviewing prior case dating back to the 1800s. The Court held that:

    “Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief.”

    agreements

    You are not legally required to have your signature witnessed on an agreement. However, the agreement itself may contain a clause to require the parties to have their signatures witnessed. This may be beneficial for evidentiary purposes and to avoid dispute later. For example, if one party alleges that they were not the ones who signed the agreement, the witness of their signatures can confirm that they were.

    The witness can be any independent party and does not need to hold specific qualifications. A spouse, family member or close friend is unlikely to be considered independent.

     

    deeds

    Unlike an agreement, you are legally required to have your signature witnessed if you are signing a deed. You will be able to tell if a document is a deed, because the signing page is likely to be titled ‘Executed as a Deed’.

    In Queensland, the Property Law Act 1974 (Qld) sets out the witnessing requirements for a deed. Other Australian states and territories have similar legislation so that execution of deeds in Australia is covered by uniform requirements.

    At least one independent party must witness your signature. It is not a requirement that the witness holds specific qualifications. It is a requirement that they are independent.

    If your deed is not properly witnessed, it may not be enforceable.

    There are flexible signing provisions in place during COVID restrictions, but they all have time limits.

     

    wills and powers of attorney (poa)

    The Succession Act 1981 (Qld) governs the signing of Wills.

    When the maker of the Will (male – testator/ female – testatrix) signs the Will, two witnesses must be present at the same time to witness their signature. The witnesses can be any independent parties, that is they can not be a beneficiary under the Will. Usually, everyone will use the same pen to sign the Will.

    When a Will does not meet the witnessing requirements, it will be invalidly made. You may still apply to the Court to have it declared a valid Will, but it is easier to have the Will properly witnessed the first time, rather than having to go to court to prove it.  

    The Power of Attorney Act 1998 (Qld) requires an enduring power of attorney to be signed in the presence of an eligible witness.

    An ‘eligible witness’ means a person who is:

    • a justice of the peace
    • a commissioner for declarations
    • an Australian lawyer
    • a notary public.

     

    land registry documents

    If you need your signature to be witnessed on a document that is to be registered with the Queensland Land Registry, the witness must be either:

    • a justice of the peace
    • a commissioner for declarations
    • an Australian lawyer
    • a notary public
    • a licensed conveyancer from another state
    • another person approved by the Registrar of Titles.

    The Land Title Act 1994 (Qld) and Land Act 1994 (Qld) requires that a witness comply with the following requirements:

    1. take reasonable steps to verify the identity of the signatory;
    2. take reasonable steps to ensure the individual is entitled to sign the document; and
    3. retain records for 7 years (which includes a written record of the steps taken to verify identity and entitlement, and documents or other evidence obtained during the process of verification).

    What this means for you as the signatory is that:

    1. you will have to produce evidence that verifies your identity; and
    2. passport, driver’s license
    3. you will have to produce evidence that you are the person entitled to sign the document.
    4. if you are selling a property, a current rate or valuation notice addressed to you and identifying the property, or a current title search
    5. if you are signing under a POA, you must produce the registered POA

    covid-19 legislation

    There is temporary COVID-19 legislation around the country which has changed some of the witnessing requirements mentioned above by offering greater flexibility.

    For example, in Queensland, deeds can now be signed electronically without a witness. Wills and powers of attorney can be witnessed through audio or visual link.

    The Queensland COVID-19 legislation will expire on 30 April 2021.

    Want more information?

    If you need help with agreements, deeds, Wills and powers of attorney documents and worry about what witnessing requirements apply, please contact us. 

    Make an Appointment

    Deeds vs Agreements: What’s the Difference?

    Deeds vs Agreements: What’s the Difference?

    by | Feb 10, 2021 | Contracts, Law for Online Business, Legal, Service Agreements

    Deeds vs Agreements: What’s the Difference?

    deeds vs agreements: what’s the difference?
     

    Contracts are an essential part of running a business, and they often come in different forms. You may have noticed that some documents are called ‘agreements’, and some are instead called ‘deeds’. So, what exactly is the difference between the two?

    Although both are legally binding documents that indicate a party’s promise to do something, the requirements and effect of these documents are very different.

    It is important for you to understand these differences and use the most appropriate one for your commercial transactions. We will highlight some of the key differences below to help you avoid being confused between the two.

     

    what is a deed?

    A deed is a special type of binding promise or commitment to do something. It indicates the executing parties’ intention to make a solemn and binding promise. 

    People often use a deed when substantial interests are at stake, such as when a person passes an interest, right or property. Deeds are also used when a unilateral promise is being made and there is no consideration from another party for that promise. For example, a unilateral confidentiality deed.

    Common types of deeds:

    • Confidentiality Deed/ Non-Disclosure Deed

    This is when you want to ensure that another party (for example, a consultant) does not share your confidential information. Typically, no consideration is provided under this type of arrangement because the consultant is not giving you anything in exchange for your  disclosure of confidential information.

    • Deed of Termination

    This is a document signed by the parties to confirm that a legally binding contract previously entered into is to be brought to an end.

    • Deed of Release and Settlement

    This is often used in legal proceedings to formalise an agreement between the parties to settle the dispute. Formal legal proceedings need not have been started. A deed of release is often used by parties wanting to avoid a court action starting.

    • Deed of Indemnity

    This is used by one party to protect and hold harmless another party as a result of a specific type of relationship, or for a specific purpose. For example, companies provide an indemnity to their directors against liabilities or legal costs incurred in the directors’ capacity as a director of the company, with some limitations.

    • Letter of Credit / Guarantee

    For example, when you purchase a property through a company or trust, the seller may require you to provide them with a personal financial guarantee to secure the obligations of the buyer.

    Another example is where you are asked to provide a bank guarantee to secure the landlord’s rights to recover payment of rent. Your bank may then provide a bank guarantee or letter of credit to the seller on your behalf. There is no consideration between your bank and the seller for this guarantee. So, to ensure that it is binding, the guarantee is set out in the form of a deed.

    What is an agreement?

    An agreement is another name for a contract. 

    It is formed when the following elements are met:

    1. offer;
    2. acceptance;
    3. consideration; and
    4. intention to be legally bound.

    If you are selling goods or services in exchange for money, then what you need would be an ‘agreement’ instead of a deed because consideration is provided.

    If you are providing those goods or services to the other party and does not ask for anything in return, then you should draft the arrangement as a ‘deed’.

    So, what are the key differences between a deed and an agreement?

     

    1. Consideration

    The most distinct difference between a deed and an agreement is the commercial exchange between the parties.

    Under an agreement, one party must provide ‘consideration’ to the other party to show that they have reached a bargain, and that they have ‘bought’ the promise by providing something of value in return. This is usually in the form of payment but can also be in the form of starting an action, such as starting a design, or construction, or delivery of goods.

    However, a deed requires no such payment or consideration to be legally binding.

     

    1. Formalities

    Another significant difference between the two types of documents is the formalities required.

    A deed must be:

    • in writing
    • signed
    • expressed to be a deed
    • delivered to the other party
    • where an individual (not a company or trust) executes a deed: witnessed by at least one person who is not a party to the deed

    However, an agreement can be more flexible in form and does not need to meet the above requirements to be legally binding. An agreement can also be made up of multiple documents. Please see our article [link] on what you need to know about legally binding contracts.

    In determining whether a document is a deed or agreement, the Queensland Court of Appeal has found that by using the words ‘executed as a deed’ or ‘by executing this deed’ unequivocally expresses an intention that the document was a deed rather than an agreement.

    Another factor is whether or not the signing parties intended for the document to be immediately binding. If the answer is yes, the document is more likely to be construed as a deed.

     

    1. Execution (Signing)

    Importantly, a deed is binding on a party when it has been signed, sealed and delivered to the other party. That is, even if the other party has not yet signed the deed.

    On the other hand, an agreement must be signed by both parties before the agreement is formed, although with electronic signing, the actually application of a wet signature to a document may not be necessary, and an exchange of emails with a clearly identifiable and reliable signature on the email may be sufficient.

    Different states have different legislation, so you need to ask about your local state requirements to make sure your deed is properly executed.

    If you are an individual:

    Under the Queensland legislation, you must have your signature witnessed by at least one person who is not a party to the deed.

    If you are a company:

    S.127 of the Corporations Act 2001 governs execution of documents by corporations. For example, a company without common seal can execute a document by having two directors or the sole director and secretary to sign it. This applies to both deeds and agreements.

     

    1. Limitation period

    Both deeds and agreements are legally enforceable documents but be careful because they have different limitation periods.

    ‘Limitation period’ is the time frame you have available to enforce your deed or agreement against someone for breaching it. Each state has different limitation periods.

    In Queensland, you must action a breach of an agreement within 6 years. In contrast, you have 12 years to action a breach of a deed.

    This is the reason why it may be a good idea to draft non-disclosure deeds to protect your confidential information instead of non-disclosure agreements. For example, if your employee breaches a confidentiality agreement written into their employment agreement, you will be able to action against them for breach within 6 years, but if you have a separate confidentiality deed, you will be able to initiate a claim within 12 years instead.

    With these core differences between a deed and an agreement in mind, you should be able to carefully consider your needs and figure out the most appropriate document to use for your business.

    Want more information?

    If you need help with drafting deeds or agreements or figuring out whether a deed or agreement is more appropriate for your use. Then make an appointment to talk to us.

    Make an Appointment

    Contracts don’t have to be in Writing to make them Binding

    Contracts don’t have to be in Writing to make them Binding

    by | Aug 8, 2019 | Contracts, Law for Online Business, Legal

    Contracts don’t have to be in Writing to make them Binding

    Not all contracts are in writing, and they don’t have to be

    A contract, in its most basic form, is an agreement between parties that legally binds them. Even without a handshake to seal it.

    People bind themselves to contracts every day, sometimes without even realising it, and as a result also acquire certain legal rights and responsibilities.

    It is commonly thought that a contract can’t be binding unless it is put in writing. While this is true in some cases, generally speaking – unwritten contracts ARE enforceable.

    There are only a very small number of contracts that have to be in writing – like the sale of land.

    You can form a contract through an exchange of emails or private messages, through a telephone call or a combination of those activities. It is helpful to think of a contract as a bargain and when a dispute arises, the law aims to determine whether or not the bargain made can be enforced.

    So whether a bargain is based on a verbal agreement, written agreement or a combination of the two, remember that actions can speak louder than words. However, its the written words you will want to rely on if something goes wrong.

    It is always wise to write down the details of an agreement, especially if large sums of money are involved and where there are no reliable witnesses or other evidence of the details. I’ve seen business partners waste all of their profits in legal disputes because they didn’t put their agreement in writing 10 years earlier while they were still friends. The beauty of having something in writing is for reference, when people have forgotten the details, or remember different things.

     

    Making a Contract

    A contract must have three identifiable features, whether it is written, verbal or partly verbal and partly in writing:

    1. Agreement (offer and acceptance)
    2. Intention
    3. Consideration

    A contract is formed when there is an agreement between the parties to undertake certain obligations.

    Agreement

    The point at which negotiations have been concluded and the agreement is reached is not always easily worked out, but there must have been a clear indication (offer) by one party of a willingness to be bound on certain terms and an unqualified acceptance of that offer.

    ‘Unqualified’ means that it shouldn’t be subject to conditions. Anything subject to conditions is not acceptance, it is further negotiation. This is where counter-offers and acceptance can become confused.

    If you offer to sell 1800 widgets at $40 each, with a discount of 30% for volume, and the buyer says ‘okay, I’ll take 600 at the discounted price‘, then the buyer has made a counter-offer, not accepted your original offer. You may not agree to that level of discount at the reduced volume.

    There are legal cases debating the point at which agreements are eventually reached, and whether or not an agreement was even made.

    Intention

    For there to be a legally enforceable contract the parties must have intended to enter into a legally binding agreement.

    Intention is seldom something you say out loud, but is usually inferred from the circumstances surrounding the agreement.

    This is where the bet in the pub becomes the primary example. Someone making an off-hand bet is unlikely to be serious.

    Another good example is where someone promises something you know they simply can’t deliver – for example ‘I’ll give you a million bucks if you …‘ when you know the person simply doesn’t have that money to spare.

    Consideration

    Before there can be a contract there must be an agreement to exchange. Each party must provide something in return for what the other is providing. The item or action exchanged is called the consideration.

    It does not matter if the consideration given by each side is of unequal value. The law requires only that something is given by each party.

    So consideration can be money, or actions, or property. Swapping items (like sports uniforms at international sporting events) is treated no differently than money being exchanged for an item.

    Donations are not the same thing. Only one party has the benefit of a donation, so a pledge to donate is usually unenforceable. However, where something is offered in exchange for a donation – like a red nose, or a yellow daffodil – then that may be sufficient consideration to create a binding contract.

    Nominal consideration is usually enough. So when a seller says you need to pay a substantial deposit to secure the deal, their actions may be capable of being considered misleading. There are many cases where $1, or similar small amount have been found to be sufficient to secure a deal.

    Signing a Contract

    You should also be aware that a contract or agreement need not necessarily be signed to be enforceable. The circumstances surrounding the contract can be enough to demonstrate that something in writing has accurately set out the parties’ intentions. A signature is usually relied upon as evidence that a person has read the document and agrees to be bound by its terms, but clicking an ‘I agree‘ check box on an electronic form or web page can have the same effect.

    A person who signs a contract or click a check box is generally bound by any terms it contains regardless of whether they have read the document, and legislation like the Electronic Transactions Act 1999 (Cth) allows for that.

    It was commented in the explanatory memorandum that ‘An addressee who actually knows, or should reasonably know in the circumstances, of the existence of the communication should be considered to have received the communication. For example, an addressee who is aware that the communication is in their electronic mail ‘box’, but who refuses to read it should be considered to have received the communication.‘

    Despite this rule, in some circumstances a person may still be able to withdraw a contract, start a court action to enforce it, or apply to a court to have the contract voided.

    These are technical legal arguments that generally only arise at the point of dispute.

    Remember, if you do find yourself in a dispute, the enforceability of an agreement or contract will depend on what law applies. For example – people buying or selling products or services online could be anywhere in the World. The law in Victoria, Australia is not the same as the law in Singapore. Different rules apply, not to mention different courts. But that is a conversation for another day.

    The final word on Contracts

    Contract law can be extremely complex, and there are different nuances in all legal systems. Look at the type of contracts you are entering into and consider the risks involved in doing so.

    If you plan on entering into a deal that is worth more than you can afford to lose, then it is highly advisable to invest in legal assistance to ensure the point of agreement, and the terms of the agreement are clear. If the contract doesn’t make sense to you, how do you know what deal you are getting involved in?

    We’re happy to assist you with a short advice, a quick review or drafting a whole new contract.

    How can Onyx Legal help you?

    Let us help you craft a contract that suits your business. With a written contract, you have a clear record of what is agreed rather than having to rely only on memory. Contact us to draft your agreements.

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    Types of Contracts

    Types of Contracts

    by | Aug 1, 2019 | Contracts, Law for Online Business, Legal

    Types of Contracts

    Types of Contracts in Business

    Sometimes the type of contract you are looking for in business is not the type of contract you need.

    Just this last week I had a client come to me with a template contract they had downloaded, and a business proposal they wanted to pursue. The problem was, the type of contract they had downloaded was a partnership agreement, and it really wasn’t suitable for what they wanted to achieve.

    You see, a partnership agreement creates all sorts of interesting obligations on the people involved and is really only suitable for a long-term collaborative business and not for the development of a side hustle or project. Traditionally legal, accounting and medical practices were set up as partnerships. In a partnership, you can become personally liable to pay for the obligations of the business, even if you didn’t know they had been created. In a professional partnership, if someone takes off with client money, the other partners can be made to replace those funds, even though they did nothing wrong. Not the type of contract you want for a short-term collaboration.

    For a side hustle, or collaboration to develop a digital product like an App, or a live product like a training program, or a physical product like an artificial hand, you are looking to create a joint venture. So, the type of contract your after will be different from a partnership agreement and can keep the obligations of the parties separate.

    There are all sorts of different types of contracts, and downloadable template might cover what you need, but it also might not. We like to work with our clients to identify the solution they are looking for and then craft a document to fit, rather than assuming your business is just like everyone else’s.

    Here are some of the variables in different types of contracts:

    Written, verbal or partly written and partly verbal contracts

    Contracts don’t necessarily need to be in writing to be binding. You might have created a binding contract simply through a video conference, an exchange of messages on a platform like Slack, or a combination of emails and phone calls.

    The beauty of having a written contract is keeping a record of what you agreed in the first place, so that if any questions arise a year down the track, you can check back and see how you covered off that scenario.

    There are definitely some contracts that do need to be in writing to be binding. A type of contract you might have come across in business is a personal guarantee. Personal guarantees do need to be in writing, and properly signed to be enforceable.

    Standard form contracts

    Love them or hate them, standard form contracts are designed to help make business easier for everyone, not harder. At least, they should be designed to make business easier.

    As a business owner, its time consuming and unproductive to create unique contracts every time you deliver the same product or service. Standard terms give you a level of comfort so that you are clear on your obligations, and your expectations of your customer, every time you complete a similar transaction.

    For customers, if standard terms are easy to understand, they know what to expect each time they deal with you. Just keep in mind that a standard form contract can still be open to negotiations. You need not lose a customer just because they don’t like your standard terms. You can be flexible, and we can help you with that.

    Click-wrap contracts

    You might not pay too much attention to all the ‘I agree’ check boxes you find online, but perhaps you should. Each time you check one of those boxes, you are entering into a contract, whether you read the terms or not.

    There have been court decisions where people have protested that they should not be bound by terms attached to check box because they didn’t read them. The courts have, to date, been in favour of pointing out that you had the chance to read them, and if you didn’t take that chance at the time, that is your responsibility and your problem.

    Click-wrap contracts are simply standard form contracts that you agree to electronically, although they are generally not negotiable. The more action you have to take to give agreement, such as not being able to agree until you have scrolled through all of the terms, can support an argument that they should be binding. 

    Doing business online is a convenience for everyone, and the volume of transactions that can be processed that way, and the variety of products and services you can access online, means it’s not unreasonable for a business to suggest you agree to their contract terms, or go elsewhere.

    Website Terms and Conditions

    Terms and conditions on a website may or may not be binding, depending on the circumstances. If you hide them away where they are hard to find (and I have seen a retail website do this) then they are unlikely to be binding. Courts are particularly interested in whether a consumer or purchaser has had the opportunity to read them first. 

    The severity of any provision in your terms and conditions will make a difference too. For example, if a website owner is attempting to say that just by browsing the information on the website without any further action, you are liable to pay $100, then that is not going to be enforceable because you haven’t had a chance to become aware of that term without first accessing the website. 

    Remember too, that trying to impose new terms and conditions retrospectively is not going to work either. If something happens and you change your website terms, the updated terms will only be binding on users after the update, and not before. This is one reason to keep “last updated” dates on your website terms, and a record of historical documents.

    Purpose of a Contract

    The purpose of your contract is likely to influence how it is structured.

    If you want something from someone, the contract will be structure to achieve that, and if someone wants something from you, the contract will be structured differently.

    We had prepared a contract for a client’s business to meet their needs. They received feedback from a business consultant (not a lawyer) that they could save money and simply copy the consultant’s contract and it would be fine.

    It wasn’t.

    The client was good enough to send us the consultant’s contract with his feedback.

    Our client wanted to employ contractors so that they could expand the area where they delivered services. Things like the protection of their intellectual property and the quality of service delivery were really important to them. We wrote the contract to fit.

    The consultant’s contract was written to favour the way he delivered services to people and protected his interests, including limiting his responsibility for the services he delivered.

    That was the opposite of our client’s needs.

    They needed their contractors to be responsible for the services delivered, and to fix problems promptly if they arose. If they had copied the consultant’s contract, they would not have been able to demand the level of quality they needed from their contractors.

    Not all Contracts are Legal

    It is worth keeping in mind that not all contracts are legal. A contract that amounts to human slavery is not going to be enforceable. A bet between mates in the pub is unlikely to form a binding contract. Contracts between businesses might include terms that heavily favour the stronger party, and those terms might be open to challenge as ‘unfair contract terms’ at law.

    How can Onyx Legal help you?

    If you are not sure what type of contract you are looking for, book a short advice session with us so we can help you work out what you need and give you peace of mind.

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