A binding contract can be verbal, in writing or electronic. You can only cancel a contract in certain situations.
You enter into a contract every time you buy, hire or lease products or services — or click on an ‘I agree’ button online.
Making a contract involves three basic steps:
- You make an offer: ‘I'd like to buy this jersey.'
- The seller accepts the offer: ‘That'll be $59.95.’
- You both exchange something of value, called ‘consideration’. The seller agrees to sell the jersey. The buyer agrees to pay the price of the jersey.
The contract is formed when you tell the seller you accept the offer. You must also both intend to make a legally binding contract.
Types of contracts
Contracts can be in writing, verbal or electronic.
Standard form contracts
A standard form contract is an agreement in which the terms haven't been negotiated, eg the agreement is offered on a take it or leave it basis. The terms can be in a separate document, or on the back of things like tickets, quotes, terms of trade or invoices.
Standard form contracts are common, eg rental car agreements, gym memberships, TV subscriptions, gas and electricity contracts, finance agreements and retirement home contracts.
Negotiated contracts involve you and the seller negotiating terms before agreeing to the contract, eg if you buy a car but make the purchase conditional on mechanical checks. They are less common for consumer products and services than standard form contracts.
A verbal contract is binding as soon as you accept an offer from a seller, or as soon as a sellar accepts your offer.
Electronic contracts are made by email and online forms (e-commerce) and social media, eg Facebook (f-commerce). They are all legally binding as long as they are validly made.
Online safety laws and rules
Before you agree to a contract
Before you agree to or sign a contract, take time to understand it. Read all the terms, including the fine print.
To minimise your risk:
- Ask questions and get advice if there is anything you are unsure about or don’t understand.
- Negotiate or shop around if the contract doesn’t suit your needs.
- Ask the seller to explain the contract.
- Make sure verbal promises or claims are attached in writing to the contract.
- Don’t be pressured into signing on the spot.
- Never sign a blank contract or allow details to be filled out later by a salesperson.
- Check any figures or other information added to the contract are correct.
- Get a copy of any contract you sign.
Paying a deposit
Paying a deposit gives security that the contract will go ahead. After the contract is completed, you will pay the balance — the rest of the total cost.
You can discuss and agree with the seller:
- if a deposit is to be paid
- how much the deposit will be
- in what circumstances the deposit will be refunded.
If the seller requires a deposit:
- Ask if the deposit will be refundable and make this a term of the contract.
- Only pay a deposit of 10% or less, unless you order purpose-built products, eg kitchen joinery, when a larger deposit may be reasonable.
- Get a receipt showing the amount paid, the balance owing, and if the deposit is refundable.
Generally a deposit is not refundable. There are three exceptions:
- The supplier fails to meet their side of the contract, eg they can’t supply the products you ordered.
- Both parties agree that the deposit is refundable in full or in part.
- You cancel products bought on layby.
Common terms and conditions
Below are definitions for common conditions and clauses you might find in a contract or agreement.
Some types of contracts have implied terms that apply even if they are not included in the contract.
Terms that are clearly stated and agreed when the contract is made. Express terms may be agreed verbally, written into the contract, or stated on a receipt or a notice at the counter.
Contracts commonly have express terms about:
- who the contract is between
- what is to be sold or supplied
- the price and payment terms, eg 'payment within 14 days of delivery'.
- when a job is to be started or completed
- delivery dates.
Terms not specifically stated but which are still part of the contract.
Implied guarantees are usually implied by law, eg under the Consumer Guarantees Act, contracts for consumer products have an implied term that guarantees the products will be of acceptable quality.
Conditional contracts require certain conditions (or actions) to be met by one or both of the parties. Otherwise the contract does not go ahead — it becomes void. Both parties must agree to the conditions at the time the contract is made.
Real estate contracts often have conditions, eg you agree to buy a property as long as you can arrange finance in a certain number of days. If you can’t get finance, the sale will be cancelled and any deposit already paid will be refunded in full.
Car buyers often agree to buy a car on condition that the car passes a mechanical check. If the car fails to pass, the buyer can choose to cancel the contract and get any deposit already paid back in full
These remove some of the seller’s responsibilities if the contract is broken. A common example is a statement like ‘The manufacturer is not responsible for a fault if the goods are used in a way that is not intended.’
Exclusion clauses are not always clear, so always ask the seller what happens if something goes wrong with the goods when they haven’t been misused.
Exclusion clauses can't contract out of the seller's responsibilities under the Fair Trading Act or Consumer Guarantees Act unless it is a business-to-business transaction.
Common words and phrases
Below are definitions for common words and phrases you might find in a contract.
Sets out who the contract or agreement is between. This usually means clearly identifying the seller, eg business, trader, retailer or service provider, and the consumer, eg buyer, customer or client.
How long the contract or agreement will last. Term can also refer to the specific things that are being agreed to in the contract, eg terms and conditions.
Entire agreement clause
Makes it clear there are no other terms apart from what is written in the contract or agreement. If a problem occurs, the written contract or agreement alone will set out the rights and obligations of both you and the seller.
These clauses do not prevent consumers from taking action against any false or misleading statements made by a business outside of the contract.
A seller’s promise that the product or service is what they claim it to be.
The promises a seller makes to you when you buy a product or service. Warranties usually include your rights as a consumer if something goes wrong. Some warranties, eg extended warranties, may provide promises over and above the law, eg the ability to return an item you accidentally damaged.
The promises a seller makes that are not fully written out in the terms of your contract or agreement. If the terms state you have 'implied warranties', this includes all of your rights under the law, eg the Consumer Guarantees Act.
Spells out the protections that both you and the seller have when you enter a contract or agreement. An indemnity clause is usually included to limit a seller’s responsibility for any loss or damage.
No matter what the indemnity clause says, you still have rights under consumer laws if something goes wrong.
States the situations when the seller no longer has to meet their obligations in a contract or agreement for reasons outside of their control, eg earthquakes and other natural disasters.
Breach and termination
Spells out when you or the seller can end the contract or agreement early. Typically, you or the seller can end it if the other party doesn’t follow the terms of the agreement. Contracts or agreements may end early for other reasons, eg force majeure.
Look out for any cancellation fees for ending a contract or agreement early.
Usually outlines which country’s laws apply to the contract or agreement. It may also include information on which country, or court within that country, will deal with any legal action if there’s a dispute between you and the seller.
Make sure you read the seller’s privacy policies, particularly if you buy online from an overseas retailer. Different countries have different laws about how a seller can use your personal information.
Outlines when a seller or business can transfer your contract or agreement — or your rights under them — to another seller. For example, if your internet provider is bought out by another business, your contract can be transferred to the new business.
Things to watch out for
You have various rights if there is a problem with any products or services:
- Statutory rights under consumer laws such as the Consumer Guarantees Act, the Fair Trading Act, and the Credit Contracts and Consumer Finance Act.
- Contractual rights under your contract with the seller.
- Common law rules of contract made by the courts.
When a contract is legally binding
A contract is legally enforceable if you both intended to make the contract and agree about what is in the contract.
You must be legally capable, also called capacity. People not legally capable of making contracts are:
- minors — people under 18, unless they’re married, or unless the other party to the contract can show the contract is fair and reasonable
- people of unsound mind, including drunk people
- people for whom the Family Court has made a property order or personal order that provides that someone else is managing their property.
The contract is not legally binding if there was:
- duress — when serious threats or pressure are used to force someone to accept a contract
- unconscionable conduct — when someone knowingly takes advantage of special circumstances, eg sickness, age, physical or mental incapacity, illiteracy, intoxication
- undue influence — when someone gets an unfair or improper advantage by abusing their power over a vulnerable person. For example, that person is young and impressionable, elderly, has some form of physical or mental incapacity, or is in a close relationship of confidence and trust.
Most consumer contracts do not have to be in writing to be legally binding. However, some consumer contracts must be in writing:
- consumer credit contracts
- door-to-door and layby sales contracts
- extended warranty contracts.
Electronic contracts are legally binding contracts.
If things go wrong
You have different options if you have a problem with a contract, depending on the terms of the contract, your situation and the different laws that apply.
If the problem is with the products or services supplied in the contract, contact the retailer, manufacturer or service provider first.
Refund, replacement, repair
Cancelling a contract
Generally, once you make a contract or accept a quote, you can’t change or cancel it without the other side agreeing (if you do, it's called breach of contract).
You can only break a contract or agreement if either:
- there is a termination clause with the right to cancel in certain circumstances
- there is a variation clause — but sometimes only the supplier has the right to vary the contract
- it's a contract with a cooling off period during which you can change your mind, eg a layby, or an uninvited direct sale like a door-to-door sale
- one of the circumstances below applies.
Laybys and buy now, pay later
Telemarketing and door-to-door sales
Example — Contract by minors
Ali signs up with his local gym. He is 15 years old and working part-time. It's a fixed-term contract for two years. After six months, Ali wants to cancel his membership as he is no longer working and can’t afford the weekly payments. His right to cancel depends on if the gym can prove that the contract was fair and reasonable, as he is a minor and the contract is otherwise not enforceable.
Example — Illegal contracts
A contract to supply a pet shop with tuatara is not enforceable as it is illegal under the Endangered Species Act to trade in endangered species.
Example — Incapacity
Joe has a mental disability and lives at home with a caregiver. A door-to-door salesman sells Joe an expensive house alarm while his caregiver is out. Joe is a bit confused about the sale and when his caregiver returns home she is not happy as they don’t need the alarm. Joe has the right to cancel the contract within the first five days of receiving the contract. The contract may also be unenforceable unless Joe fully understood his decision to buy the alarm.
Example — Duress and undue influence
Bo needs to get some money to buy a car to get to work as her last one died. Bo goes to a loan shark, who says she needs a guarantor. On his advice, Bo pressures her grandmother and threatens to cut her off from her grandchildren unless she acts as a loan guarantor. The grandmother reluctantly signs the guarantee as she doesn’t want to miss out on seeing her grandchildren. Later, when the loan shark tries to enforce the guarantee against the grandmother, she may be able to claim undue influence and duress to cancel the guarantee.
Example — Serious breach and cancellation for consumer services
Kiri asks a roofer to replace her roof and supply the materials. The new roof leaks badly after a week of heavy rain and Kiri is told the work will have to be completely redone. Kiri cancels the contract as this is a serious breach of contract, and does not pay the roofer for his services. She will still have to pay the roofer for the materials supplied as they are not faulty.
Example — Misrepresentation by a business
Before purchasing some hops, Joe, a farmer, asks the seller if a certain ingredient has been used in cultivating the hops. He makes it clear that if it has, he is not interested in buying. The seller assures Joe that the certain ingredient was not used. However, Joe later discovers that the ingredient was used. Joe can cancel the contract as the requirement that the certain ingredient not be included in the grain was a serious misrepresentation under the Contract and Consumer Law Act.
Example — Breach of contract
Fetu contracts with a builder to build a garage on his property and they agree the work is to start in two weeks. The builder contacts Fetu two days before the start date to say they have to complete several other contracts first and there will be a two-week delay. Fetu may be able to cancel the contract if this deadline is important to him as a serious breach under the Consumer Guarantees Act.
Example — Standard form contracts
When Oriwa signs up for a new broadband package with a phone and internet company, she’ll receive a standard set of terms and conditions. Apart from choosing the level of data she’d like to receive, she probably can’t negotiate any of the other terms. This is a standard form contract.
Example — Cancellation fee as a penalty
Margaret books a service for her car with the local garage. On the booking form it states that if she cancels on the day of the booking, she’ll be charged a $250 cancellation fee. Unless the garage can justify this cancellation fee as a reasonable estimate of the loss it would suffer for that cancellation, it is not enforceable as a penalty.