What is a contract?
A contract is a legal agreement between two or more parties that can be enforced by the law. It can be written or verbal. A consumer contract is created when:
- there is an offer by the buyer of the goods and an acceptance of that offer by the seller (or trader);
- the buyer and seller (or trader) intend to be legally bound by the transaction; and
- the buyer agrees to pay the seller (or trader).
Not all contracts must be in writing to be legally enforceable. For example, a contract to sell land must be in writing, but an agreement to purchase a television need not be.
A person cannot be part of a legally enforceable contract unless they have 'legal capacity'. Although people under the age of 18 are legally 'minors', they may be bound by consumer contracts if they understood that the transaction was legally binding.
There are different laws in each State/Territory about the validity of these contracts, so check with your Consumer Affairs (or Fair Trading) Office.
People with an intellectual disability
In general, a person with an intellectual disability or a mental illness can make a binding consumer contract if:
- they understood the nature of the contract and what they were agreeing to; and
- the seller (or trader) knew (or ought to have known) the person had an intellectual disability or mental illness.
Some transactions (e.g. a used car purchase) are clearly more complex than others (e.g. a purchase at a Milk Bar). It is worth getting legal advice if you want to challenge a contract made by a person with an intellectual disability or mental illness, especially if you believe they did not understand the nature of the agreement.
Under the Commonwealth Bankruptcy Act 1966, some contracts for goods or services cannot be entered into unless you have first informed the other party about your situation – check with your financial or legal advisor, or your trustee in bankruptcy.
'Before you sign' checklist
Never sign a contract that you do not fully understand. Look out for the following:
- if you do not understand the contract get advice from a solicitor, or contact your Consumer Affairs or Fair Trading Office;
- be especially careful if you do not have finance for your purchase. Get advice to make sure you will be able to cancel the contract if the loan does not come through;
- contracts are open to negotiation before they are signed, so think about any terms and conditions you want added or changed to better suit your needs;
- check whether there is a 'cooling off period', during which you can change your mind about the purchase – these are only available for a limited number of goods. Make sure you understand your rights to cancel the purchase;
- remember that an enforceable contract may come under many names – don't sign an 'order form' (or similar) unless you have read and understood it.
Last Updated – February 2014
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