A contract is a legally binding agreement between two or more people or businesses.
When you agree to buy something now and pay for it later or take out a loan, you enter into a contract. It is between you and the person or organisation that you bought or borrowed from.
If you have a dispute about a contract there are several options.
Legally binding contracts
Not all agreements form legally binding contracts. A valid contract needs the following elements:
- People entering the contract must intend the contract to be binding.
- An offer is made by one person and is freely accepted by another.
- Some price (money, right or benefit) is paid in return for a promise.
- People making the contract have legal capacity to form a contract.
Contracts can't be enforced if they:
- are agreements to do illegal things
- breach other legal requirements
- are made between family members and were never intended to be enforced, for example, an agreement between parents and a child for pocket money.
Contracts can be written or spoken
For many contracts it does not matter if you made the agreement in writing or just spoke about it.
However, the law says that some contracts must be in writing, including:
- agreements about buying, selling or mortgaging land and houses
- consumer finance or credit agreements
- agreements to buy a car from a licensed motor car trader
- door-to-door sales agreements
- agreements for things to be done more than one year from the date of the agreement being made.
Any agreement that is important to you should be put in writing.
Does a contract have to be written by a lawyer to be legal?
No. It is legally valid to write down what has been agreed, sign and date it. Everyone involved should check that the words correctly state their agreement before they sign and date the contract.
Never sign a contract unless you completely understand what you are getting into.
When writing your own agreements keep the words as simple as possible. Make sure there are no blanks that could be filled in by other people after you have signed, and put your initials next to any changes that are made to the contract before you sign it. Everyone involved should get a copy of the signed contract.
Get legal advice if you are not sure if the contract properly reflects your agreement or if you have any concerns about the agreement.
If someone does not meet a verbal agreement
Most unwritten contracts are enforceable but it can be difficult to prove what was agreed to.
Sometimes a court will have to decide this, after listening to witnesses and reading any documents that exist. The court may also look at what normally happens in the particular industry or type of work or business that applies.
With some common forms of business, for instance a panel beater, the way that all panel beaters work is well known, and those standard procedures are considered if there is a dispute. The Consumer Affairs Victoria website contains information about contracts and advice if you think a term in a contract is unfair.
Disputing a contract
There are several options if you have a dispute about a contract that you can’t resolve by talking with the other people involved.
You can go to court to try to get a court order stating that:
- the contract must be kept (enforcing the contract; also known as ‘specific performance’)
- the contract has been legally cancelled (legal cancellation is also known as ‘rescission’), or
- money must be paid as compensation for breaking the contract (also known as paying ‘damages’).
Taking a dispute to court costs money, so a contract worth only a small amount may not be worth going to court over.
There are quicker and cheaper ways of resolving contract disputes, without going to court. If you are in dispute with a business, trader or a professional, they may be a member of a professional association that offers an alternative dispute resolution service.
Going to court
The Magistrates' Court can deal with disputes involving amounts up to $100,000.
Some disputes about contracts can be resolved using the Victorian Civil and Administrative Tribunal (VCAT). For information about the types of disputes VCAT will hear, see Goods and Services Disputes.
To lodge an application you can complete the online application form, attach the required documents, and pay the VCAT fee. If you are in financial hardship, you can apply to not pay the fee, pay a reduced fee, or pay the fee at a later date.
Unfair contract terms
Consumer contracts must not contain unfair terms. These are terms that create an imbalance in the rights of the parties, to the consumer’s disadvantage.
You can challenge unfair contract terms at VCAT. Get legal advice if you are considering doing this.
Consumer Affairs Victoria(opens in a new window) has information about contracts and advice if you think a term in a contract is unfair.
Unfair credit contracts
In most cases, lenders must check that you are able to repay the loan by checking your financial situation.
Most lenders have to comply with a ‘code of behaviour’. Lenders must follow the rules in this code. The code sets out what information the lender must include in a contract. They can be fined if they do not follow the code.
For most consumer loans the law requires the lender to make clear what the total cost will be. This includes the interest rate, fees and charges for the loan, and how much this will cost over the length of the loan.
Lenders must provide information so that you can find out the true cost of the loan, taking into account fees and charges. Read this information carefully, as it can sometimes be misleading.
If information is not properly shown on the loan documents, or if the advertisem*nt says one thing but the contract says another, get legal advice.
You may be able to get compensation. If you think something has gone wrong, keep all the paperwork and the advertisem*nt and get advice early.
If you need help to sort out a dispute with your lender, contact the Australian Financial Complaints Authority (AFCA). You should complain to the lender first.
They can also help if you have having trouble paying your debts, or if you have not been able to work out an arrangement with your lender. Contact AFCA.
The lender has to belong to this service. They have to tell you about AFCA when you borrow money. The service is free.
If you think your credit contract is unfair, you may be able to apply to VCAT to have it changed. You should get legal advice about this.
The Money smart website has information about borrowing money and credit options.
Other support
Find out how you can get other support for business and commercial matters.
