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Contract law

Bought something from the dairy lately? Hired a plumber? Booked a motel? If you did, you entered a contract. You, and the person you dealt with, have legal rights and obligations. And the agreement you made can be legally enforced. There’s no backing out now.


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What is a contract?

Contracts come in all shapes and sizes. Some are verbal, some written. Some are formal, some informal. They all have 3 features in common:

  • you make someone an offer
  • they accept it
  • and you promise to give something - usually money - in return for what you're getting. The legal term for this promise is "consideration".

Verbal and written contracts

Generally, contracts don't have to be in writing. A verbal agreement is binding, but you can save yourself a lot of hassle by writing it down: if things go wrong, how do you prove the terms of a verbal contract?

Putting the contract in writing also makes sure you both understand exactly what's being promised before you agree.

Watch out for marketing people who phone you. We know of cases where people have had their power supply or phone switched over to a new company, and they didn't realise they'd agreed. If the company can't provide a recording proving you did agree to switch, you can demand to be switched back.

Some contracts have to be in writing, including credit contracts, insurance contracts, agreements to buy and sell real estate, and agreements to buy cars from registered dealers.

What does my contract mean?

When you enter a contract, you're bound by everything you've specifically agreed with the other person or company.

You might also be covered by terms and conditions that weren't specifically mentioned but are, nevertheless, assumed under the law to be part of the contract.

For example, if you go to an appliance store and buy a new TV that turns out to be faulty, you're entitled to take it back. You don't need to have a specific agreement from the store that it will work. The Consumer Guarantees Act requires that goods and services should be fit for the purpose they're sold for, and that promise is assumed to be part of the contract you made when you bought the TV.

Another example is where you buy a phone card. The card directs you to a website for the full terms and conditions. If the supplier can show that the terms and conditions were available before you bought the phone card, then you are bound by them. However, if you couldn't read the terms and conditions until after you bought the card, then in our opinion they're not valid.

Standard form contracts

Standard form contracts are commonly used by businesses that provide services to large numbers of customers. Your dealings with your electricity company, your insurer, your bank and so on are governed by this type of contract. They are offered on a "take it or leave it" basis - you won't be given the opportunity to quibble over details you're not happy with.

Commonly, these contracts include a clause giving the company the right to alter the terms and conditions as they see fit. This is why your electricity company can put up its prices and your cable TV company can change the channels available on your plan, even though you haven't "agreed" to it.

Getting out of a contract

Once you've entered into a contract, you're generally stuck with it. You can only back out or change the terms if the person or company you're dealing with agrees.

Say you've just been shopping and, on impulse, bought yourself a new jacket. But, because you later decide you don't like the colour, or can't really afford it, you can't just take it back. You've entered a binding contract with the shop. Despite what many people think, you don't have 7 days to change your mind and return it.

There are a few exceptions. Here are some of the common ones:

  • If you borrowed money on a credit contract, you can cancel the contract any time during the first 3 days. If the contract was a hire purchase agreement for your new DVD player, and you've already taken possession of it, you can get out of the credit agreement but you've got to keep the DVD - and pay cash for it. If you haven't taken possession, you can cancel outright and pay nothing.
  • If you're buying a new dress or anything else on layby, you can cancel the layby arrangement at any time. Usually, you'll get most of your money back.
  • Under the Contract and Commercial Law Act, minors can sometimes avoid their responsibilities under a contract. A contract that is not "fair and reasonable" can't be enforced against someone younger than 18.


Ever found an absolute bargain, only to be told when you get to the shop counter the price was a mistake?

Unfortunately for you, the shop can't be forced to sell at the display price. The price tag is an invitation for you and the shop to talk; it isn't an "offer" under contract law. The shop can raise the price or introduce other new conditions at any time until you reach agreement.

But if the shop discovers the mistake after you've made the purchase, it generally can't then ask you to pay more. By then, you have a contract.

The only exception is if you knew the price was a mistake, but took advantage of it anyway. Under the Contract and Commercial Law Act, a court could require you to pay the correct price. For example, you go to buy a jacket for $300, but the shop assistant only types $30 into the eftpos machine. You notice this but continue with the purchase, hoping to get away with it. If the shop contacts you later once they realise the mistake you have to pay them the difference.

Shops can't deliberately display the wrong price in order to entice customers in. That would breach the Fair Trading Act, which bans misleading advertising.

Law talk

Explanations of some common legal terms associated with contracts.

When someone doesn't fulfil their part of the contract.

Money paid over to compensate for a breach of contract. For "special" damages, you have to prove the exact amount the breach cost you. "General" damages cover things that can't measured, such as distress, humiliation and inconvenience.

This is when the contract can't be carried out because of circumstances beyond everyone's control. Say, for example, you hire the local church hall for your wedding but it's struck by lightning and burns down. If that happens, you don't have to pay but you can't sue the church for damages.

If you write a letter accepting an offer, the contract applies as soon as you put the letter in the post. The only exceptions are if you were specifically asked to accept in some other way, or if posting a letter is unreasonable in the circumstances. If you accept by fax, there's no contract until the fax reaches its intended destination. The legal situation with e-mail is still unclear.

This is the term for a court order telling you to follow the terms of the contract.

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