16 Apr 2014You’d think that if you shook hands to seal a deal it wouldn’t be worth the paper it was written on. Not so. The law in Australia does allow a contract to be legally binding if it is written or verbal. A handshake on a deal can be legally binding, and you can be held accountable if you breach the agreement.
The verbal agreement doesn’t apply to certain legal matters, such as a mortgage, buying real estate or taking out insurance. A signed contract is required for those big ticket matters.
But generally speaking a verbal agreement can be just as enforceable as a written one so long as there is an offer and acceptance of an offer for which money will be exchanged.
When you think about it, we do such verbal agreements all the time. Order food at a restaurant and we are making an offer – the waiter will bring us our order in return for us paying the amount specified on the menu. Not paying would be a breach of that verbal contract, and the law is on the waiter’s side.
But what if the stakes are a little larger? Let’s say a customer orders $1000 worth of cakes for a party. The baker makes the cakes, but the party is cancelled and the customer refuses to pay, saying there’s no evidence they ordered the cakes. It is the customer’s word against the baker’s.
The baker can go to the NSW Civil and Administrative Tribunal, which hears consumer disputes up to $30,000, or the Small Claims Division of the Local Court for matters under $10,000. The case will be adjudicated, but it will come down to proof. That can be tricky. Does the baker have records of a phone conversation, a witness to the customer making the order, an email or an invoice? Even an email from the customer discussing cakes should be enough to establish there was a commercial agreement.
To avoid risks, most lawyers would recommend putting agreements that involve substantial work or value on paper. A quote or invoice should suffice. Keep records of conversations when something is agreed to. When a contract is agreed to, both sides have obligations to stick to it. If either side seeks to change an agreement they may be liable to a penalty. Lawyers advise that if substantial amounts are involved in a contract it is best to have a written contract, and get legal advice before signing.
Don’t forget customers have quite strong rights under consumer law. Knowing those rights could save a lot of headaches.
For more information about written and unwritten contracts, please see Social media influencer wins payout after client breaches verbal contract (January 2020), Is a written contract necessary for a deal to be enforceable? (June 2020) and Is a handshake agreement legally binding? (June 2020).
