As a business owner, dealing with contracts is just one part of running your business. You will have a number of contractual relationships with a variety of stakeholders across the lifespan of your business.
You may enter into lease agreements, employment contracts, insurance agreements, financial agreements or franchise agreements.
You may be a supplier of goods or services whether as a retailer or wholesaler and you may have agreements with other businesses such as a partnership or joint venture.
This article is a comprehensive guide on navigating agreements and contracts for business owners across Sydney.
Take a look at our contract disputes page to learn more about how contracts and agreements are pivotal to your business operations.
What is an agreement?
An agreement is an arrangement or understanding between two or more parties as to their relative rights and responsibilities. Agreements can be written or verbal and can be formal or informal in nature. When entering into an agreement, the parties may not intend to be legally bound by the agreement so there are no legal consequences if you break a non-binding agreement. Conversely, parties may intend to be legally bound by the agreement which would create a binding agreement between the parties and legal consequences if it is broken.
What is a contract?
A contract is a set of promises which are legally enforceable. Contracts can be verbal, written or a combination of both although some types of contracts must be in writing such as buying or selling real property or finance agreements. Every contract however must contain the following four essential elements:
- An offer.
- An acceptance of that offer.
- An intention by the parties to be legally bound.
Consideration or in other words, an exchange of value, such as money.
What is the difference between a contract and an agreement?
The main difference between a contract and an agreement is that a contract is legally binding, and an agreement may or may not be legally binding. Those who enter a contract must do so with the intention of creating a legal relationship. This legal relationship involves the creation of legally binding obligations between the parties which are enforceable by the law. In a business or commercial context if you enter into an agreement, there may be a presumption that you intended to create a legally binding contract. Accordingly, as a business owner, it is important that when negotiating an agreement that you are clear about whether an agreement is intended to be legally binding or not. If you do want to enter into a legally enforceable contract then it is also important to consider whether the contract is valid, how the law is applied to those contracts, standard form contracts, signing contracts and breach of contracts.
There are factors which can make a contract invalid such as where:
- The contract is illegal or induces someone to commit a crime.
- The contract is uncertain or incomplete.
- A party to the contract lacks capacity – they could be a minor or a bankrupt for example.
- There is a common mistake, where both parties are mistaken as to the subject matter of the agreement.
- The agreement was made through misleading and deceptive conduct, unconscionable conduct, undue influence or duress.
Standard form contracts
Standard form contracts are those contracts which are pre-prepared by the person offering the contract and contain the same set of terms and conditions in every instance that the goods and services are sold. There is often no negotiation between the parties although it may be possible to negotiate the terms of a standard form contract. The Australian Consumer Law applies to these contracts protecting consumers and small businesses from unfair contracts. As a business owner, you must ensure that your standard form contracts do not unfairly disadvantage the person entering into the agreement. Under the Australian Consumer Law, a term is considered unfair when it meets three conditions:
- The term significantly imbalances the rights and obligations between the business and consumer.
- The term would cause a financial or other detriment if enforced.
- The term is not reasonably necessary to protect the interests of the business.
If a court determines that a contract term is unfair the term will be void which means that the term is treated as though it never existed and accordingly cannot be enforced. The contract may or may not stand and if it does stand then usually the unfair term will be removed.
What to do before signing a contract?
As a business owner entering into a contract, it is essential that you seek legal advice particularly if the agreement is complex or involves something of high value. A commercial lawyer can help you understand your rights and obligations, as well as identify any potential risk and possibly limit your liability depending on the circumstances. However, you can also take steps yourself to protect your interests when signing a contract.
Before signing a contract, you should:
- Read every word, even the fine print.
- Take time to carefully consider the contract even if that means sleeping on it.
- Not feel pressured or rushed into signing the contract.
- Ensure that the contract reflects the agreement negotiated.
- Cross out any blank spaces on the contract prior to signing so it cannot be altered later.
- Ensure that all parties initial any changes made to the contract.
- Always obtain a copy of the contract signed.
Breach of contract
A breach of contract occurs when one party fails to fulfil a contractual obligation within the time frame as set out in the contract. Depending on the type of breach, remedies for breach of contract can include:
- An award of damages – a sum of money awarded by a court compensating the non-breaching party.
- Specific performance – an order made by a court that a party to a contract fulfil their obligations in accordance with the contract.
- An injunction – an order made by a court that one of the parties to the contract be stopped from doing something.
- Restitution – where one party is returned to their original position before the breach occurred.
Signed, Sealed, and Delivered with Dettmann Phair Lawyers
At Dettmann Phair Lawyers, our contract lawyers in Chatswood have the business aptitude and legal knowledge to guide you and your business though the complexities that contract law can often present.
Whether you need assistance drafting a contract, advice before entering into a contract, assistance negotiating contract terms, believe a contract is invalid or has been breached, we’re here to help!
Contact us on (02) 9412 4500 for expert advice and to discuss your options.