Entry into Contracts

Farmer Freddy is heading to the Fieldays this week with his wife Jill and son Jack. He is keen to find any good deals that might be around and knows it will be hard to stop Jill from buying a few things too.

Freddy tends to get carried away when faced with so many good deals, but isn't particularly worried because he thinks it's pretty easy to get out of a contract if he really needs to because he has seen a better deal.

While some contracts must be in writing (deeds, contracts for the disposition of land, guarantee etc), what Freddy doesn't realise is that contracts can also be formed verbally or by actions. To be a valid contract there must be:

  • An offer
  • Acceptance of that offer
  • The promise to give something in return for what you are getting
  • Certainty
  • An intention to be bound.

While an oral agreement is generally binding, it is easier to prove a contract that is in writing and to determine what was actually agreed. Most of us enter into contracts everyday without even knowing it - the act of buying a drink from the dairy amounts to a simple contract for the purchase of that drink and has a number of rights and obligations that go with it.

Contracts can also be entered into by an exchange of emails or text messages, provided they meet the requirements for a valid contract.  Unfortunately for Freddy, once you have entered into a contract, you generally can't just walk away from it just because you want to. Common misconceptions about contracts are that contracts that are not dated or initialled on every page are not enforceable - they are. Some contracts may not even be signed but can still be valid contracts if both parties have acted as though the contract is in place.

While some contracts are on standard terms (e.g., for your phone or electricity) and you can either take the service on the providers' terms or not take it, in other situations the purchaser may have the ability to influence or change the terms of the contract. In either situation, you should clearly understand what you are signing before you sign it.

When reviewing the terms of a contract, some things Freddy should check include:

  • Whether the other party to the contract is who he thinks he is contracting with
  • Who is doing what for whom and in exchange for what
  • What time frames are in the contract (payment and delivery)
  • How payment must be made and to whom
  • In what circumstances can the contract be terminated or amended
  • What is the effect of termination of the contract
  • What happens on breach of the contact.

In a future article, we will look at the issues that arise when Freddy's teenage son, Jack enters into a contract (contracting with minors) and how the law applies differently to contracts Freddy enters into for business purposes and contracts Jill enters into for personal or household use.


The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document.
If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.
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