If it’s not in Writing, is it still a Contract?
Imagine. You’re in the market for some built-in wardrobes so you get a few quotes. Then a carpenter who you’ve known for years offers to undercut all of the quotes and do the job at a much lower price. You agree immediately. There’s no paperwork – you know and trust him so you think there’s no need. The job proceeds and you’re really happy with the end result. But when the invoice arrives, it’s $500 more than the price you had agreed upon.
What can you do? You don’t have a written contract, so you don’t have a leg to stand on. Or do you?
It’s worth understanding how contracts work so that you know your legal rights, just in case you’re ever faced with a tricky contract situation.
A good starting point for this discussion is the basics of contract law. That is, how a contract is made and how it works.
In essence, a contract is an agreement between two or more parties (usually aged 18 years or more). A contract must be entered into freely by the parties. This means that there can’t be fraud, duress or mistake. If the contract is not freely entered into, it may be invalid which means that it can’t be enforced.
Contracts have the following key features:
Offer and acceptance
Offer and acceptance means that one party offers to do something and the other party accepts that offer. For example, Zoe might offer to sell her car to Barry for $4,000. Barry accepts that offer by agreeing to buy the car for that amount.
Intention to create legal relations
There must be more than an agreement between the parties. They must also intend to be legally bound by the agreement. This means that the parties all understand that, if necessary, either (or any) party can take legal action to enforce the agreement.
Consideration is the price that is paid in exchange for the transaction that is being agreed to.
Consideration doesn’t always have to be a payment. It might be a right, an agreement to do something or even an agreement not to do something. At its simplest, it can be understood in these terms:
Person X agrees to do something in exchange for …
To use our example, Zoe agrees to sell her car to Barry in exchange for Barry paying her $4,000.
Contracts are everywhere
Almost every time you agree to pay for something – for example, a dress, a haircut or a bus ticket – you are entering into a contract because the key contractual elements of offer and acceptance, intention to create legal relations and consideration all exist.
But if you had to have a written contract drawn up each time you decided to buy something or use a service, society would quickly grind to a halt. Imagine how slow a bus trip would be if a contract was presented to every person wanting to catch the bus. They would have to read it, consider its terms and sign it before boarding. But because most of us also know that we could get into trouble for not paying a bus fare, we do the right thing and pay the fare without the need for a written contract.
So contracts are formed all the time, all around us, and we don’t need a written document each time. We just understand and accept that we’re obliged to do something (usually pay money) whenever we want to buy something or use a service.
Consider our car example with Zoe and Barry. There has been offer and acceptance as well as consideration. They haven’t specifically said that they intend to create legal relations but we can assume that because of the agreement that they have reached. This means that even though they haven’t signed a written document, there is a contract nonetheless because all the elements are there.
But what if one of them breaches the contract? For example, what if, after they have agreed on the price, Zoe says that she wants $5,000?
Evidence of the terms of the contract
Breach of contract brings us to the reason why so many contracts are in writing. The elements of a contract can be present but if there are no witnesses to the agreement, or if it’s just your word against the other person’s, it can be difficult to prove the terms of the contract. On the other hand, if there is a written document, the parties have a way of proving the terms.
For example, Barry says that he and Zoe had agreed that she would sell him the car for $4000. He says that she has now breached the contract by wanting $5000. Zoe denies that she ever offered $4000 and that the amount was always $5000. No one else heard the discussion. Zoe and Barry didn’t write the terms down anywhere. It’s Barry’s word against Zoe’s because there is no other proof, or evidence. Because there’s no evidence, Barry may find it difficult to successfully take legal action against Zoe to enforce the terms of the contract.
This is why often contracts are recorded in writing. It’s fair to say that the more money involved the more likely there will be a written agreement (often drafted by a lawyer) that is formally signed by all the parties.
But there are other ways to prove the terms of a contract. For example, if Zoe and Barry had emailed each other agreeing to the sale price of $4000, Barry could use those emails to prove the terms of the contract. If there were any witnesses to conversations about the terms, they could also give evidence about what they saw and heard.
And going back to our first example – you may be able to avoid paying the carpenter the extra $500 if you can prove that you’d agreed to a lower amount. Maybe you’d communicated via text message and reached agreement that way. But as far as the friendship goes, that may be unsalvageable!
Understanding the operation of contract law is handy because as we go about our daily lives we are constantly entering into contracts. But when there’s a lot of money or a high value at stake, it’s always best to be able to prove the terms of the contract – whether it’s a series of emails, text messages or even a witness to the discussion of terms. And the higher the stakes, the more need there is for a formal document that has been drafted by a lawyer and signed by all parties.
Websters Lawyers have a great team of contract lawyers who can assist you, whether you need a formal document drafted, need to prove terms of a contract or are in need of some advice about a breach of contract. Contact us today for a free first interview.
This article provides general information only. For advice specific to your needs, you should consult a lawyer.