When is a Contract Not Binding?
A number of conditions or circumstances can make a contract unenforceable. Therefore it’s worth checking whether or not the criteria of a valid contract are present on any business agreement.
For example even though a commercial contract might on the face of it be binding it may be that contract is not in fact enforceable. Therefore a party may be able to get out of the contract and possibly be paid damages or compensation for any loss they have suffered.
The law recognizes that in certain circumstances a contract may be unenforceable or void. As a general statement the law will provide protection where the conduct of one party to the contract is considered unfair or unconscionable. There are many examples where the law will provide protection to an innocent or vulnerable person. Generally, each case needs to be looked at on its owns facts. The most common situations where a contract may be considered unenforceable or not binding are set out below.
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Misleading and or Deceptive Conduct
The most common area where a contract can be challenged is where there has been misrepresentations or misleading or deceptive conduct made which has induced another party to enter in to a contract. The most common remedy is through the Competition and Consumer Act 2010 (Cth).
Duress
This occurs where one party to a contract exerts pressure on the other party and that pressure causes the other party to enter into the contract. Duress can take many forms such as illegal threats for some one to enter into a contract or economic threats for example an essential supplier refuses to provide goods unless the porty agrees to certain terms and conditions.
Illegality
Where a contract is prohibited by statute or common law then it will be unenforceable. For example, a contract with some one to commit a crime will be illegal.
Unfair terms
The Australian Consumer Law contains a framework where terms contained in a consumer contract or small business contract may be void.
What is a consumer contract?
A consumer contract is a contract for the supply of goods or services or the sale or grant of an interest in land “to an individual whose acquisition of the goods , services or interest is wholly or predominantly for personal, domestic or household use or consumption”.
This means that the person acquiring the goods, service(s) or interest is doing so for personal use or consumption and not as part of carrying on an enterprise. Follow the link, for an explanation of consumer contracts.
What is a Small business Contract?
A small business contract is
(a) the contract is for a supply of goods or services, or a sale or grant of an interest in land; and
(b) at the time the contract is entered into, at least one party to the contract is a business that employs fewer than 20 persons; and
(c) either of the following applies:
(i) the upfront price payable under the contract does not exceed $300,000;
(ii) the contract has a duration of more than 12 months and the upfront price payable under the contract does not exceed $1,000,000.
The sections 23, 24 and 25 of Schedule 2 of the Australian Consumer Law set out this frame work and some examples. See also the ACCC guide to unfair contract terms.
Commercial Contracts and business agreements are important. They set out the rules and avoid uncertainty. All contracts need to be specifically tailored to the situation. A standard contract template is only the starting point.
Before you enter into a contract, you need to be sure the contract terms are right for your circumstances. This is where we can help. We are expert commercial and business lawyers with many years’ experience. We have reviewed literally every type of contract from all kinds of industries which means we understand where the problems can occur.
How Much Does it Cost to Review a Commercial Contract or Business Agreement?
The fees for reviewing commercial contracts or business agreements are determined by a number of factors. Simple contracts cost less to review than contracts spanning many pages.
If you need your contract prepared or reviewed by an experienced contract lawyer, email us your contract now and we will once we give you a quote.
We are Melbourne contract lawyers with extensive experience in giving legal advice to clients about contract law and business law. This means we have the skills to identify the main legal issues when the preparing and reviewing contracts and business agreements so you can get the right legal advice.
Whether undertaking a contract review or preparing a contract we ensure that the final agreement is are clear on what the parties have to do and are clear in what are the consequences of a breach of contract. With a well drafted and valid contract from an experienced contract lawyer you can void potential issues that could lead to dispute.
Contract law can be complex and as experienced business contract lawyers based in the Melbourne CBD we can assist you in drawing up a commercial contract that will protect your business. If you have been asked to sign a contract we are able to reviewing the contract you have been asked to sign. Hopefully this article has helped you understand the answer to the question “when is a contract not binding?”.
