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This fact sheet gives an overview of what constitutes a contract and the obligations arising from entering into a contract.
A contract is a legally binding agreement between two or more parties. For example, if you purchase any goods, buy a house, engage a tradesperson to carry out work, borrow money, order goods or machinery from a manufacturer, or sign up for a telephone plan, these involve all types of contracts.
A contract involves:
The parties must also have the legal capacity to enter into a contract. Most contracts relate to the provision of goods and services and are in writing, but they can also be verbal or agreed to with a click of the mouse.
Generally the terms of a contract are for the parties to decide. However, the law may ‘imply’ terms into the contract. One implied term is that goods sold for a particular purpose are able to be used for that purpose. For example, that a machine which is sold as a clothes dryer will dry your clothes.
Despite the wording of a contract, there are some circumstances in which a court might decide not to enforce its strict terms. For example, you may have rights under the Australian Consumer Law that cannot be waived by terms in a contract.
The Australian Consumer Law offers protection in circumstances where you have little or no opportunity to negotiate with a business. This includes:
In considering whether conduct may have been unfair, the courts may take into account factors such as:
If you sign a written contract then generally you are bound by all of its terms even if you did not read or understand them. There are various types of contracts which do not require your signature. For example, a car park ticket or a dry-cleaning docket, which has clauses printed on the back.
Once you make a contract you will be committing a breach if you do not comply with its terms, or if you change your mind and decide not to perform your obligations under the contract.
The available remedies for a party who breaches a contract can be through:
The type of remedy and its availability would depend very much on the type of contract and the type of breach.
Minors (people under 18) can’t be held to a contract unless it relates to the necessities of life (such as food, shelter, or other basic essentials).
Parties that breach a contract could be forced by a court to pay damages or provide other forms of redress. If you would like to learn more about unfair contract terms read A guide to unfair contract terms law, which is available from the ACCC at www.accc.gov.au.