Ever heard a sweeping statement about contract law, and been not quite sure if it was true? We’re here to help. Here’s a list of some common misconceptions about contracts that we hear all the time at Sanicki.

1. A contract has to be in writing

Contrary to popular belief, contracts don’t have to be written to be legally binding. They can be made orally, via text messages, or even through conduct, as long as some basic elements are satisfied: 

1. Offer and Acceptance: One party must make an offer, and the other party must accept. 
2. Intention to Create Legal Relations: Both parties must intend for their agreement to be legally enforceable.
3. Consideration: Something of value (usually money, services, or goods) must be exchanged.
4. Capacity: Both parties must have legal capacity to contract (e.g., not minors or under duress).
5. Certainty: The terms of the contract must be clear and definite.

That said, there are some types of contracts that have to be in writing to be legally binding, for example:

• Contracts for the sale of land or real estate.
• Consumer credit contracts.
• Certain guarantees.
• The assignment of copyright

A written contract is often a good idea. It provides clear evidence of the terms of your bargain, and can help avoid disputes down the track.

2. If it’s in the contract, it’s legally enforceable

Not all terms in a contract are necessarily legally enforceable. Here are some examples of types of contractual terms that are commonly unenforceable:

Illegality

Terms involving illegal activity are unenforceable. For example:

• Contracts that promote unlawful behavior, such as committing a crime or avoiding legal obligations (like tax evasion).
• Any clause attempting to waive or violate statutory rights (such as those under the Australian Consumer Law or employment laws).
• Restraint clauses in employment contracts are commonly unenforceable. 

Unfair Contract Terms

Under the Australian Consumer Law (ACL), unfair terms in standard form contracts (such as those used with consumers and small businesses) are not enforceable. A term is considered unfair if it:

• Causes a significant imbalance in the parties’ rights and obligations.
• Is not reasonably necessary to protect a legitimate interest.
• Causes detriment to the other party if it were enforced.

Ambiguous or Unclear Terms

Terms must be clear and certain. If a term is vague or ambiguous, it may be unenforceable because a court can’t determine what was intended. This could include uncertainty about price, quantity, or delivery.

Duress, Undue Influence, or Misrepresentation

If a person agrees to a contract under duress, undue influence, or misrepresentation, it may not be enforceable. For instance:

• If one party was forced or pressured into agreeing to a term.
• If one party misrepresented important facts during contract formation.

3. A contract has to be signed, otherwise it’s void.

A contract doesn’t have to be signed to be enforceable, as long as the fundamental elements of a contract are met: offer, acceptance, intention to create legal relations, consideration, capacity, and certainty. Many contracts, particularly verbal or implied contracts, can be legally binding without a signature. However, a signature typically serves as evidence that a party has agreed to the contract terms. It helps avoid disputes by clearly showing that the parties intended to be bound by the agreement. 

However as mentioned above, there are some types of contracts that have to be signed to be enforceable. 

Electronic signatures are generally enforceable as long as they meet certain requirements under the Electronic Transactions Act 1999. 

4. If I’m under 18, contracts aren’t binding on me.

Minors generally don’t have the full legal capacity to enter binding contracts. However, there are important exceptions to this rule.

Minors can enter contracts for necessities essential for their well-being, such as food, clothing, education, medical care, and accommodation. These contracts will be enforceable if they are suitable to the minor’s life (e.g., their social or financial standing) and are necessary for their actual needs at the time of the sale. 

Minors may also enter binding contracts that are for their benefit. For example, contracts of employment, apprenticeships, or training. It is recommended however for a legal guardian to sign these types of contracts on the minor’s behalf, because the question of whether a contract is for a minor’s ‘benefit’ is often contentious. Courts assess factors like fairness, the working conditions, and payment. If a contract is harmful to the minor, it is likely to be unenforceable.

For contracts that do not fall into either of these acceptable categories, minors may still enter into them, but they are generally voidable at the minor’s discretion. If a minor enters into a contract and then, on turning 18, continues to act in accordance with the contract (such as making payments or using goods or services), the contract may be considered ratified. This means the contract is now binding.

5. If I trust the other party, so we don’t really need a proper contract.

It is generally a good idea to have a written contract, even if you trust each other. A contract provides a clear framework, prevents misunderstandings, and protects your interests in case things go wrong. 

A contract should clearly outline the terms, including rights and obligations of each party, payment terms, delivery schedules, dispute resolution mechanisms, and other key details. People’s memories can fade or differ over time, and disputes can arise even between parties who initially trusted each other (trust us, it happens all the time!). 

Additionally, unforeseen events can change the dynamics of an agreement. For example:

• One party might go through financial difficulties.
• A new party might join the business.
• A party might die or become incapacitated.

A contract can account for such changes by including force majeure clauses, termination clauses, or provisions for renegotiation, helping ensure the deal can be maintained or fairly exited if circumstances change.

Having a written contract can actually enhance trust. It provides clarity and ensures both parties understand their commitments. A contract shows mutual respect for each other’s interests and the seriousness of the agreement.

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Need help with a contract? Contact us today for expert contractual legal advice.