People tend to think of a contract or legal agreement as a formal, written document which is signed by both parties. In reality, every time you do exchange one valuable thing for another, you’ve just entered into a legal agreement. Naturally, some contracts are simple and instantaneous (see: buying a Gatorade) while others are more complicated (for example, selling your property empire).
So really, you have entered into tens of thousands of contracts throughout your life, and you are likely to enter into many more. With that in mind, it’s about time you learnt exactly how they work.
Contracts don’t need to be signed or formalised
A ‘contract’ or a ‘business agreement’ does not necessarily have to be a formalised document signed by both parties. A chain of emails between two companies could constitute a binding legal contract. So can a purchase order, or a booking form. In fact, a simple oral conversation can also be deemed a binding legal agreement by the law (see below: contracts can be verbal).
The two key things you need to keep in mind are:
- are the parties operating in a business context?; and
- did I (or the other party) clearly ‘agree’ to the contract?
The concept of signing was developed to represent unequivocal proof that a party has agreed to the contract. However, even without a signature, a party can still be deemed to have agreed to a contract by its conduct (for example, payment of a deposit).
Silent agreement/agreement by conduct
A lot of businesses display their “Terms and Conditions”. You might see them, for example, in websites, carparks, and on the back of tickets. You don’t actually sign those terms and conditions, but they are still a contract which you are agreeing to through your use of the service or product. If you are using a website, buying a ticket, or parking in a car park, you will almost always be deemed to have accepted their terms and conditions as binding legal contract.
You could also be deemed to have accepted a contract by silence or by a course of dealings. Basically, this means that because you didn’t expressly reject the terms offered to you, and continued to do business with the other party, you have accepted them. A common example of this is when someone issues you regular invoices with payment terms on them (for example, pay within 14 days otherwise interest applies). The fact that you always complied with the terms and never raised an objection means that you have accepted them by conduct. The same will apply when someone sends you a contract but you don’t actually sign it, but you continue to do business with them.
So am I always bound by all these “Terms and Conditions” which I never read or even see?
Truthfully – it may be harder for a party to enforce (ie, get a court to recognise) agreements like these. The fact that you had no real chance to negotiate the terms, and that you maybe did not actually see them, can give you a bit of wiggle room. In particular, if those contracts contain terms that are unusually onerous or stringent, a judge may rule that you aren’t bound by those unusual terms.
However, the bottom line is that you will most likely be held to have accepted the contract, and most of the contract will certainly apply to you.
Next time, please remember: if someone sends you a contract or terms and conditions, and you don’t sign them but continue to do business with them, you could be deemed to have agreed to the contract.
Contracts can be verbal
Not only is it that contracts do not need to be signed to be legally binding, there is actually no requirement that a contract even be written down. A verbal or oral contract may also constitute a valid agreement. Common examples of entering into a binding oral agreement is placing a purchase order on the phone or booking an appointment.
Of course, the validity of a verbal contract may be more open to question than a formalised written document. It will also be harder for a party to argue that the other party definitely agreed to the contract. Still, when parties are operating in a business context (say, a café owner ordering coffee from his coffee supplier on the phone), the default legal position is that the parties intend to enter into a binding legal agreement.
Naturally, a verbal agreement tends to be less comprehensive than a written agreement – that is, it usually doesn’t cover a lot of key areas (when can the contract be cancelled? What happens if delivery of goods/services is late?). This usually results in costly disputes. For this reason, if you are doing business, it is always preferable to have each parties’ rights clearly defined in a written agreement.
Every time you purchase something from a website, enter a carpark or order something off someone on the phone, you are entering a legal contract. It is important for you to realise this and also to have some sort of an idea of what terms you are agreeing to (especially because these “standard terms and conditions” are usually ridiculously biased against you). Just because you haven’t signed a fancy document doesn’t mean you are not legally obligated towards another party.