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

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

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 relay only on memory. Contact us to draft your agreements. 

Types of Contracts

Types of Contracts

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.

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.

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.

Is a scanned Contract legally binding in Australia?

Is a scanned Contract legally binding in Australia?

Is a scanned Contract legally binding in Australia?

The short answer is YES, it can be. But first let’s cover off some other frequently asked questions surrounding contracts.

Do different countries have different preferences for scanned contracts?

In a recent LinkedIn group discussion with other lawyers around the world, different countries appeared to have different preferences regarding hard copies versus scanned/electronic copies of contracts.

Those countries happy with a Scanned or Electronic copy of a contract were:

  • Australia
  • France
  • India
  • Netherlands
  • Philippines
  • UK
  • USA

Those countries who preferred a hard copy signed contract were:

  • Chile
  • Indonesia
  • Nigeria
  • Mexico
  • Pakistan
  • Singapore

So, depending on where you are in the world, a scanned copy of a contract might not be your best form of contract.

Does a Contract Have to Be In Writing?

No.

Most of the time a contract doesn’t have to be in writing, as much as anyone might tell you otherwise. This includes those people who decide they can’t afford to pay for your services and say ‘I never signed the contract‘.

We’ve covered this question in more detail in another article about contracts.

Do you need a lawyer to write a valid Contract?

No.

Some people are very capable of identifying the core issues in a deal and documenting that clearly. Lawyers are trained to do this, but that doesn’t mean they are the only people capable, and in fact, we’ve seen some poor contracts written by lawyers as well.

Most contracts only need to contain three components to be legally valid:

  1. All parties must be in agreement (after an offer has been made by one party and accepted by the other).
  2. Something of value must be exchanged (such as money, services, goods or a promise to exchange such an item) for something else of value.
  3. All parties intend to create a legal relationship (rather than a joke or a bet in the pub).

It is legally valid to simply keep a written record of what has been agreed, preferably dated, keeping the following in mind:

  • There is less chance of arguments in the future if everyone involved checks that the words correctly state their agreement.
  • Getting a signature on a page can be used to demonstrate that the person signing agreed to what has been written down.
  • When writing your own agreements keep the words as straight forward as possible and avoid leaving blanks that could be filled in by other people at a later date.
  • Never sign a contract unless you completely understand what you are getting into (even lawyers can make this mistake).
  • Write down your initials next to any changes that are made to the contract.
  • Everyone involved should get a copy of the final contract, whether or not it is signed.
  • Get legal advice if you are not sure whether the contract properly reflects your agreement, or if you have any concerns about the agreement.
  • Don’t assume something is okay if you don’t understand what it means. It is better to be clear than confused and have problems later.

CAUTION

We have seen contracts written by people who do not have legal training. Sometimes they are good, sometimes they are bad.

Some consultants get hold of precedents and think they know how to amend them. This can create legal problems, rather than solutions.

We have seen a contract cobbled together by a marketing or business consultant that was overly complicated, contradictory and contained terms that simply weren’t relevant to the purpose of the contract.

Beware if the language is old fashioned with lots of Latin references or ‘heretofores‘ etc, then it’s probably an old document someone has copied and may contain references to law that has changed over the years.

 

Does a Contract have to be Signed to be binding?

No.

Some contracts – for instance where someone guarantees the repayment of another’s obligation – have legislation that requires signatures to prove that the contract is valid, but most common contracts can be completed without an original signature, particularly after the adoption of Electronic Transaction Legislation which provides for the enforcement of click wrap agreements and electronically signed agreements.

How can you tell if a person agrees when they haven’t Signed a Contract?

A party must be seen to agree to the terms of a contract in order for it to become legally binding.

You can be seen to agree to the terms of a contract even if you haven’t read it. Click wrap agreements – those links to terms and conditions with an ‘I agree’ check box online – are a prime example of contracts that people enter into every day without reading them. How many of you have read all of the terms and conditions applicable to your Facebook account? Not many for sure.

If you take an action that has been anticipated in the contract, even if you haven’t signed it, you may be seen to have acted consistently with the contract, and in compliance with it.

Though agreement can be demonstrated by the signatures of the parties, it is generally accepted that parties can enter into a contract by following the course of action set out in the agreement, which ‘proves’ their consent.

When drafting a service agreement for a business we will usually include a paragraph that makes the services terms binding, whether or not the agreement is signed by the client. This is because it is often difficult for businesses to get clients to return signed documents before starting work.

An example of the type of clause used might be:

This agreement will be binding on you as soon as you ask us to start work, unless you immediately ask us to stop providing Services to you, whether or not you sign it.

For contracts that do need a signature (like guarantees) it is highly unlikely that the contract will be found to be binding on a party if it is not signed.

Contract formalities

As a general rule contracts do not need to comply with any sort of formalities. Even if you have a written document that has been signed, a signature can be challenged with evidence from a handwriting expert, and we have been involved in a court case where this was done.

Court matters – litigation – are costly processes and one of the most costly phases of litigation is the called ‘discovery‘. During the discovery process, each party to a court matter is required to create a list of all documents that might have anything to do with the dispute, and prepare those documents in a format that the other parties can read.

Thirty years ago all the documents presented to court tended to be in paper form. Now, they are mainly electronic. Think of all those short ‘thanks‘ emails you have sent in the last year. If created as part of a conversation that is now related to a dispute, they are each separately discoverable in court proceedings. 

With the proliferation of email and other electronic messaging, electronic discovery has become almost essential to court proceedings. Electronic discovery is now an industry in its own right with analytics and processing to avoid human beings having to read every electronic document ever produced.

So, coming back to scanned copies of contracts and whether or not they are enforceable. The real question is –

Is the scanned copy of the document the best available evidence that the parties entered into a contract in the first place?

While having an original printed contract with hand written signatures available to prove the parties were involved would arguably provide the best evidence, it’s not the only method to prove that a legally binding agreement can be formed, and proven, between parties. If a paper copy is not available, the scanned copy probably is the best evidence.

How can Onyx Legal help you?

If your contracts need review, update, or you don’t have one yet, let us help you to create the best contract for your style of business to avoid unnecessary delays. We love writing contracts. Contact us so we can help you with your contract today.

Get your contracts checked by a lawyer!

Get your contracts checked by a lawyer!

Get your contracts checked by a lawyer!

Why getting a contract checked by a lawyer can save you thousands!

Today I wanted to share a quick thing with you about checking your contracts.

We’ve got a client selling an aspect of their business. They’re selling it for $230,000. So what they’re selling is not their company, they’re selling the assets of the company. Now, they came to us and said, “Is this something I should get checked by a lawyer?”

Well, it’s worth $230,000 to you. Do you want to keep that money? Do you want to protect it? Do you want to make sure the transaction goes through and you get the money? It’s going to cost them around $1,500 to get us to review the contract, check that it’s all right, suggest changes, highlight risks and protect their interests.

Do you reckon that’s worth $230,000? 

How can Onyx Legal help you?

For any agreement you want to go into that involves more money than you can afford to lose, contact us so we can prepare or run through the contract for you to help you to protect your interests and hang on to your hard earned money.
Lawyers v. Smart Contracts & Templates

Lawyers v. Smart Contracts & Templates

Lawyers v. Smart Contracts & Templates

Are Contracts written by lawyers better than Templates?

It helps if you have an idea whether the template you want to use was written by a lawyer in the country where you are, and you know that it is right for the purpose you want to use it for.

Basic website terms of use, a simply Australia privacy policy, an agreement to buy a piece of furniture; these can all be fairly simply documents, until you have something out of the ordinary. For example, a privacy policy will be more detailed if you collect health information, and terms of use for a website will be more detailed if you have a membership area people can login to.

Templates are easy. Or seem to be. Fill in a few gaps and off you go. For a predictable business with low risk, templates may well be sufficient.

But, if you have anything unique about your business or the deal that you are trying to achieve, then a lawyer can help you to cover everything that needs to be covered in your agreement, rather than relying on a template full of gaps. Consider that standard business sale contracts in some Australian States still don’t adequately cover the online assets of a business, like a website, email list or social media pages.

While a very simple contract may be able to be automated, more complex contracts will be a hybrid of automated and manual terms. While contracts generally don’t cover all eventualities, they are created in the context of broader contract law, and therefore the solutions to various contractual issues can be found in the system into which those contracts are born.
Molly Thomas, Proctor 12/2016

What can go wrong with a template agreement?

Templates have to be generic to be effective, and are often limited. If you have specific requirements for your business, they probably won’t all be addressed in a stock standard template, and at that point you need additional help.

The trouble with templates is that if you ask a lawyer to review it and amend it to fit your circumstances, and they did not write it, it might take longer than them drafting it. This is because most lawyers have their own compilation of templates they are already familiar with. Something in a new format has to be understood first.

Not all templates are the same value or quality.

Some have lots of guidance to help you complete yourself, others have none. Different laws apply in different countries, as well as different ways of presenting information. So a contract written for an English company might be similar to something written for an Australian company, and completely different from something written for a company in the United States. If you pick the wrong law, your template might not have any effect, or might even contradict the law that applies.

For example, we had a client who bought a business using a contract from a different jurisdiction. There were some items that simply didn’t apply to the deal, but were included in the document.

The parties ended up in dispute and the dispute was much more expensive to resolve than it would have been if an appropriate contract had been used. It would have helped if either or both parties had sought legal advice before the deal.

Is there a set format or language for contracts?

Some contracts are clearly written for the lawyers involved and have only passing application to what the client actually wants to achieve.

Many lawyers out there might consider that statement harsh, but we do believe that if a client can’t understand what you have written for them without needing you to interpret it for them, then the contract was not written for the client.

On the other hand, downloadable templates are now prolific, both paid and for free. Again, not always written in a way that makes sense to the lay (non-legal) person.

You will see that the way contracts are written in the United States the documents contain more legalese than something written in Australia.

The format followed for writing contracts is more from convention and is not a requirement. An exchange of emails, with no formal layout or order, can be read together to create a contract.

Why is a written Contract better than a handshake?

If you can remember in clear detail everything you did on Friday of last week, congratulations. You have a better memory than 99.99% of the population.

Not only do most people have limited memory, but neuroscience has shown that our memories are selective. You might remember a clear event from your childhood that your sibling, who was there with you, has no memory of at all.

Given that memory is so unreliable, why would you not put a contract in writing? Particularly an agreement you want to keep in place and rely upon for years to come?

What are Smart Contracts?

Technology is constantly evolving.

The next step in evolution is to create ‘smart contracts’. Smart contracts are generated on the basis of your response to a catalogue of questions and are supposed to adapt to your requirements. Smart forms and smart contracts will work in circumstances where there are limited variables, but may not be effective where a novel approach is required.

It is possible that smart contracts might become normal for employment contracts, shareholder agreements and other contracts that have defined limits, but not where creativity and flexibility are required.

The worst thing you can do is sign something you don’t understand.

How can Onyx Legal help you?