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You may not realise just how often you
enter into a contract - in fact, every time you buy something. That
means anything from buying a packet of potato chips, to takeaways,
movie tickets, a car on hire purchase, or a mortgage on a house.
A contract is when you offer to buy something and the seller
accepts your offer.
For a contract to exist, something of value must be exchanged -
eg, money may be exchanged for goods and/or services.
A contract may exist even if you agree to pay the money or get
the goods or services some time in the future.
Form of contract
A contract can be spoken (verbal) or in writing.
A contract does not have to be in writing to be legally binding,
but some consumer contracts do have to be in writing:
- hire purchase contracts
- door-to-door sales contracts
- contracts agreeing to act as a guarantor
- contracts for the purchase of a motor vehicle from a dealer
- contracts for the purchase of real estate.
Take the contract away and take time to understand it. Ask a
friend, Citizens Advice Bureau, or Community Law Centre to help you
interpret anything you don't understand.
Examples of contracts
- A piece of paper that says that you will be paid $15 an hour
for painting a house.
- A piece of paper that says you will pay $30 a month to X
company to hire a TV.
- A lease to rent a house.
- You want to buy a book. You give $15 to the bookseller and
s/he gives you the book in exchange.
Making a contract
There are three basic steps in making a contract. There must be:
an offer this is made by the buyer
"I'd like to buy this jersey"
acceptance of offer this is done by the seller
"that'll be $59.95"
consideration both sides must give something
the seller agrees to sell the jersey
the buyer agrees to pay.
A contract will exist when the seller has accepted the buyer's
offer and both have agreed there will be consideration.
The contract will exist even when money and goods are not
actually exchanged at the time of sale.
eg, Jude sees a chair in a furniture shop.
She orders one and asks for it to be covered in a fabric to match
the sofa she has at home. The shop accepts her order and says the
chair will be delivered in six weeks time. The shop and Jude agree
that she will pay for the chair on delivery.
A contract will be legally enforceable or binding if these four
conditions are met:
- Both parties intended to make the contract.
- Both parties agree about what is in the contract.
- The contract is legal. Contracts made to buy or sell anything
illegal are not enforceable.
- The contract must be made by people who are legally capable.
This is called capacity. People who are not legally capable of
making contracts are:
- minors - people under the age of 18 or the other party can show the contract is
fair and reasonable.
- people of unsound mind - this includes
people with protection orders under the Mental Health Act,
people with a general mental disability, and intoxicated people.
The key point is - was it obvious that the person did not
understand what was being agreed to and did the other person
take advantage of this?
Terms and conditions
Most contracts have terms and conditions. These are the rules of
the contract. They say what you (the buyer) and the trader must do
to complete the contract. You need to know what these terms and
conditions are before entering a contract because once you enter a
contract you accept the terms and conditions.
The two main reasons why a contract may be cancelled are:
- the trader has given the consumer incorrect information about
an essential part of the contract
- an important term or condition of the contract has been
broken.
Examples
- A delivery agreement. The trader agrees to deliver the goods
you have bought, undamaged, to your home.
- A lease. The person renting the house agrees to keep the house
clean and tidy.
Express terms
Express terms are terms that are clearly stated and agreed when
the contract is made. These terms are often called clauses. Express
terms may be agreed verbally, written into the contract, or stated
on a receipt or notice behind the counter.
Contracts commonly have express terms about:
- who the contract is between
- what is to be sold or supplied
- what the price is
- how and when payment is to be made
- when a job is to be started or completed
- when goods are to be delivered.
Examples
Jane orders fenceposts from the timberyard. A sign clearly
displayed at the counter says "Payment due within 14 days of
delivery". It is a term of the contract that she will pay for the
timber within 14 days of delivery.
Moana sees firewood advertised in her local newspaper. She orders
three cords. Joe agrees to deliver the firewood on Friday afternoon.
Moana agrees to pay for the firewood on delivery. There are two
express terms in this contract
- Joe will deliver the firewood on Friday afternoon, and
- Moana will pay for the firewood on delivery.
Implied terms
Implied terms are terms which are not specifically stated but
which are still part of the contract. Implied terms are most
commonly implied by statute - ie, that kind of contract is covered
by a particular Act.
eg, contracts for the sale of goods will
have an implied term which guarantees that goods will be of
acceptable quality. The consumer's contract does not have to
specifically mention the Consumer Guarantees Act.
Conditional contracts
Conditional contracts rely on either one of the parties requiring
and carrying out a specific action before both parties are required
to continue with the contract. Both parties must agree to this at
the time the contract is made.
If the condition is not met the contract does not go ahead - it
becomes "void".
Examples
Purchase of a house. Buyer places a condition on the sale that
they have 10 working days to arrange suitable finance and if they
can't get finance, the sale will be cancelled. Any deposit or other
money they may have paid to the seller should be refunded in full.
Purchase of a car. Buyer places a condition on the sale that the
car must pass a mechanical check and if the car fails to pass the
check the buyer can choose to cancel the contract. Any deposit that
has been paid should be refunded.
Exclusion clauses
Some contracts also have "exclusion" clauses. An exclusion clause
is a sentence written into the contract which removes some of the
trader's responsibilities if the contract is broken.
eg "The manufacturer is not responsible
for a fault if the goods are used in a way not intended." Always
ask the trader what happens if something goes wrong with the goods
because exclusion clauses are not always clear.
Breach of contract
"Breach" means to break one of the terms or conditions of the
contract.
eg, a person contracts with a service
provider to build a garage on their property starting the work in
two weeks. The service provider contacts the buyer two days before
she/he is due to start work to say that several other contracts
have to be completed first and there will now be a two week delay.
Some of the remedies you may be entitled to if the seller
breaches the contract are set out in laws (such as the
Consumer Guarantees Act where the work
is substandard). Other remedies are given under "common law" (
general principles that courts have set out from deciding contract
disputes eg failure to complete the contract, time delays).
Cancelling a contract
You have a right to cancel a contract in a number of situations
when things go wrong. What rights you have will depend on:
- whether you have a credit contract
- your contract was with a trader or not, and
- what went wrong.
Goods bought on credit
There are special rules about cancelling a contract for goods
bought on credit. Check out the website sections on
loans and
hire purchase
agreements for more information about cancelling a credit contract
There are also special rules for cancelling a "door to door"
credit sale. Check out our information on the
Door to Door Sales Act.
Buying from a trader
The Consumer Guarantees Act gives you rights if you buy goods or
services from a retailer or service provider for personal or
household use. See the sections on Consumer Guarantees Act for more
information.
Buying privately
Generally, when you buying something privately you do not have
the right to cancel the contract and you have only limited rights if
something goes wrong - it is a situation of "Buyer Beware".
But you do have rights in the following situations:
The seller has misled you
The Contractual Remedies Act gives you a right to claim
compensation if you agreed to the contract based on what the other
party told you, and that information turns out to be incorrect. The
amount of compensation should be sufficient to put you in the
position you would have been if the misrepresentation hadn't been
made.
eg, Tem tells Lisa that the car she is
buying from him has recently had its engine reconditioned. She
finds out one week later that the engine has not been
reconditioned. Lisa can claim compensation from Tem for the cost
of having the engine reconditioned.
The seller did not have the right to sell the goods
The Sale of Goods Act gives you the right to cancel a contract or
claim compensation where, unknown to you, the seller did not have
the right to sell the goods, or the goods were being used as
security.
Are there any other opportunities to cancel?
Normally you cannot cancel a contract when the other party can
still provide the goods and services contracted for. But this can
change:
- if the contract has a "termination" clause or term which gives
you the right to cancel in certain circumstances with notice
-check your contract for this term.
- if the other party agrees to accept your cancellation - this
may happen if they have another customer waiting for the same
goods or services (but you may have to pay a cancellation fee).
eg, you bought a six month gym membership.
After two months you moved to another town. The gym will accept
your cancellation but with one month's notice as the gym has this
termination clause in the membership terms. You will get a refund
equal to the un-used three months remaining of your membership.
Partially completed contracts
eg, you are having your house painted.
Only two sides of the house have been painted when the painter
walks off the job for no apparent reason. It's now two weeks later
and the painter has not returned.
You can cancel the remainder of the contract and pay the painter
only for the work that has been done. If the combined cost of the
work done so far and the work required to complete the job is more
than the original price, you can claim the difference from the
painter.
Deposits (refunding)
A deposit is an amount you pay to reserve the right to buy goods
or services at a later date. The deposit acts as a form of security
that the contract will go ahead. After the contract is completed,
(usually when the goods have been delivered) you will pay the
balance.
It is for you and the trader to agree on whether a deposit is to
be paid, how much the deposit will be, and in what circumstances the
deposit will be refunded.
If the trader does require a deposit:
- discuss with them whether the deposit will be refundable. If
the trader agrees that the deposit will be refundable this becomes
a term of the contract.
- try to avoid paying a deposit of more than 10%. If the trader
is making purpose-built goods such as kitchen joinery, a larger
deposit may be reasonable.
- ask for a receipt showing the amount paid, the balance owing,
and whether the deposit is refundable.
Can I get a deposit back if the contract is cancelled?
The general rule is that a deposit is not refundable. But there
are three exceptions to this rule:
- if the trader fails to meet their side of the contract - eg,
the trader cannot supply the goods you ordered
- if you and the trader have agreed that the deposit will be
refundable (in full or in part). In other words, it is a term of
the contract.
- if you bought the goods on layby. The
sale is covered by the Layby Sales Act which sets out specific
rules when a layby is cancelled.
Frequently asked questions
Can I claim compensation from a garage if
my car has been driven while it was in for repairs?
If I decide I can't afford to go ahead
with a repair after seeing a quote, can a repair person charge an
inspection fee?
My gym has moved across town and I want to
cancel my membership. Can I do this?
Do I have to pay the extra when a travel
agent misquotes a price for a travel booking or air fare?
Can a service provider (like a dentist,
doctor or hairdresser) charge a fee for a cancelled appointment?
Can I claim compensation from
a garage if my car has been driven while it was in for repairs?
Yes - if you can prove that the garage was using the car without
your authority. By leaving the car with the garage you are only
authorising them to use the car in relation to the repair - eg, test
driving it. You don't expect it to be used for joy riding or private
use by the mechanic.
If I decide I can't afford to
go ahead with a repair after seeing a quote, can a repair person
charge an inspection fee?
Yes. You have entered into a commercial transaction which has a
financial cost to the repairer. A repair person can charge for the
time taken to inspect the goods, checking the availability of spare
parts and preparing a quote or estimate. The repairer should
consider placing a simple and clear sign in the shop that tells
customers about the inspection charge.
My gym has moved across town and I
want to cancel my membership. Can I do this?
This depends on whether it is still reasonable for you to use the
facilities and whether the gym has breached it's contract with you.
eg, if a fitness centre which was based in
a business district and marketed its services to office workers
now moves to the suburbs, then it is arguable that the gym is
breaching the contract with those office workers who signed up to
use the gym during their lunch break.
Do I have to pay the extra when
a travel agent misquotes a price for a travel booking or air fare?
If you received a quote, this is binding unless the agent
specified that the price is subject to change until full payment is
received. If full payment has been received then the agency would
not be able to collect any further amount.
Can a service provider (like
a dentist, doctor or hairdresser) charge a fee for a cancelled
appointment?
You're entering into a contract with the service provider by
making an appointment. Not turning up for the appointment is a
breach of that contract. If the service provider suffered a
financial loss to their business as a result of being unable to
refill the appointment, they can recover that loss from you.
As this is not a common trade practice (at present) amongst all
personal services, it is recommended that next time you make an
appointment, ask about any cancellation fees.
Traders intending to charge for broken appointments should notify
customers or clients that a fee will be charged for a cancelled,
forgotten or missed appointment. This information could be put on
the back of an appointment card or on a notice at the counter.
Notice could also be given verbally for bookings made over the
phone.
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