ENTERING INTO A CONTRACT

In simple terms a contract is a promise or set of promises which the law will enforce. Over many years, courts have developed principles which tell us whether there is a legally binding or enforceable contract in existence.

In a contract for the sale of goods or services there is a legal agreement between you and the person from whom you are purchasing goods or services whereby they agree to sell you those goods or services and you agree to pay for them at an agreed price or an agreed rate.

How do you know you have entered into a contract?

An agreement for sale of goods or services arises where the following elements are present:

An offer and an acceptance of that offer

A few examples of how this happens in practice:

1. When you are purchasing goods in a shop the offer is made not by the shopkeeper displaying the goods but when you take the goods to the checkout and offer to buy them.
2. Generally, circulars and catalogues do not constitute offers but rather you sending in an order form is the offer.
3. At auctions, a bidder makes the offer and the offer is accepted by the auctioneer with the fall of the hammer.

Consideration

This element of a contract does not mean that you have to have given consideration to whether to make the offer or to accept an offer! Consideration is a term which simply means that each of the parties has to give something for what they receive under a contract.

For example, you get the goods and the seller gets your money.

It is not always necessary that money must actually change hands before a contract comes into existence: often the consideration is just a promise to pay and that is sufficient.

Accordingly you cannot rely on the fact that you have not actually paid for the goods as a basis for saying that there was no contract.

An intention to be legally bound

Generally where there are agreements which relate to family, social or domestic relationships courts will presume that there is no intention to create a legally binding agreement.

In commercial situations however, courts will presume that this intention existed.

Legal capacity

Sometimes courts will not enforce contracts entered into by people who are mentally unable to understand what they are doing.

Persons who are under 18 are said to lack the capacity to enter into some types of contracts but they can be held to other types of contracts.

Requirement of writing

The general law position is that contracts do not have to be in writing to be enforceable. Parliament has however created certain laws which require writing in some circumstances.

For example, if you were going to sue someone over a contract involving the sale of land you would need to have some evidence of the agreement in writing signed by the other person.

Even though it is not generally necessary to have a contract in writing, it is generally advisable when larger purchases are involved and especially where a contract is for the provision of services.

RIGHTS UNDER A CONTRACT

The general law of contracts derived from the decisions of courts over the years gives you some rights if there is a breach of a term of the contract. The general law may also give you some rights if the seller has engaged in certain types of conduct such as fraud.

In Victoria there is also legislation called the Goods Act which may give you additional rights under a contract in some circumstances. The Act does this by saying that in certain types of contracts extra terms will be implied or read into the contract by courts unless the contract expressly says that these implied terms are excluded.

Some of these implied terms are:

• If you sell goods, you are promising that you own them in the first place and have the right to sell them.
• That the goods are free from any debt or charge. You would not be able to sell something which still had money owing on it unless the buyer agreed to accept that before they entered into the contract.
• That where you are selling goods by description, that is where the buyer has not seen the goods, they must match the description. Similarly, if the buyer has bought something on the basis of a sample, the goods supplied must match the sample.
• If a consumer makes it known to a seller the purpose for which they want to buy goods, there is an implied term that the goods must be fit for the that purpose.
• That the goods must be of “merchantable quality”. This means that they have to be fit for the purpose for which such goods are usually bought.

What rights do I have if a term of the contract has been breached?

If a contract has been breached, the general law of contract provides a range of possible remedies, depending on how important the term was to the making of the contract.

It may be possible for you to:

• Terminate the contract. An example of this would be where you refuse to accept goods delivered to you on the basis that they are defective. Document 4 provides information about your rights when returning goods.
• Obtain damages. An example of this would be where you have incurred some expense in addition to the price of the goods in having them repaired.
• Obtain specific performance. This means that the court may order the other party to carry out the things they promised to do under the contract.

RETURNING GOODS

When can I return goods?

You can return something for either:

• a refund of the monies you paid,
• repair of the goods or replacement of the goods if the goods are defective,
• the goods are not what was described by the salesperson or in advertising, both generally or at the place where you purchased the goods, or
• you let the salesperson know why you wanted the goods and the goods are not fit for the purpose you told the salesperson you wanted them for.

You do not have a right to a refund because:

• you bought goods which are the wrong size, or
• you changed your mind about the colour or decided you just do not like the goods any more.

Some stores will give you a refund or exchange the goods for other goods or give you a credit note. However, they are not obliged to do so by law.

What if I return the goods and I only want a cash refund?

If the goods were faulty or inaccurately described or not suitable for the purpose you made known to the salesperson you can insist on a cash refund and you do not have to accept a credit note even if the store has a “No Refund” sign.

Do not be deterred by "No Refund" signs as "No Refund" signs only apply if you bought the wrong sized colour or changed your mind. They do not apply when the goods are faulty, improperly described or not fit for the purpose which you told the salesperson you were buying them for.

How long can I keep the goods for before I can demand a refund?

This depends upon the nature of the goods. For instance it may be considered unreasonable to purchase an article of clothing to wear and wash it numerous times and then to ask for a refund because stitching comes loose or the like.

Each case needs to be decided on its merits but there is a difference between a defect, and fair wear and tear.

The nature of fair wear and tear depends upon the type of good purchased and the use to which it is put. It also depends upon the type of materials of which the goods are made.

In some cases goods may need small repairs. If the seller is able to make those repairs without difficulty, the seller may be able to insist on repairing the good rather than replacing it.

PRODUCT SAFETY AND PRODUCT INFORMATION

A significant part of consumer protection law depends on the schemes developed by state and federal Parliaments to deal with the setting of minimum standards.

If you have been supplied with goods which contravene a consumer safety standard and you suffer loss or damage which would not have occurred if the standard had been complied with, you may have the right to compensation.

You may also be entitled to recover from the supplier any money paid for the goods or a court can order that the goods be repaired or modified.

UNFAIR SELLING PRACTICES

Misleading and deceptive conduct

The federal Trade Practices Act prohibits corporations from engaging in conduct which is misleading or deceptive or likely to mislead or deceive. Examples of the sort of conduct which might be caught by this provision include:

• A “half truth” in advertising.
• Suggesting that a product has some association with a well known personality when in fact it doesn't.
• Comparing one product with another may be misleading if there is not enough information provided to make a fair comparison.
• Stating that a product is made in one country when in fact it has been made in another country.
• Using a logo similar to a well-known manufacturer or supplier.
• Starting up a business with a name similar to a competitor.
• Using packaging similar to a competitor.
• Misleading explanations about the risks involved in a contract.
• Overly optimistic statements about the expected returns in an investment scheme.
• False or misleading labels.

False representations

The federal Trade Practices Act also prohibits false and misleading statements about specific characteristics of goods or services. For example, it is prohibited to:

• Falsely represent that goods are of a particular standard, style, type or model.
• Falsely represent that goods have a sponsorship or approval or benefits which they do not have.
• Falsely represent that goods are new when they are not.
• Make false or misleading representations about the availability of repair facilities, the place of origin of goods, or the price of goods.

Offering Gifts and Prizes

Under federal and state legislation, it is illegal to offer gifts and prizes in connection with the supply or possible supply of goods or services if there is no intention of providing them, or of not providing them as offered. Examples of the sort of conduct which might be caught by this provision include:

• Failing to state the closing date for the period during which the offer will be current.
• Failing to tell consumers that to win a prize they must first acquire other goods or services from the advertiser.
• Advertisements which offer money but in fact all the consumer gets is a voucher, or a lottery ticket in a draw to win the amount offered as a prize.
• Inflating the cost of the goods to cover the cost of the gift.

Bait advertising

State and federal legislation prohibits advertising goods or services at a specified rate if there are reasonable grounds for believing those goods or services will not be available in sufficient quantities over a reasonable period of time.

This practice is commonly known as “bait advertising” because the cheap goods are used as a bait to get customers into a store so that sales staff can attempt to interest them in other goods and services.

What is “sufficient” and “reasonable” depends on all the circumstances.

Referral selling

Referral selling is a selling technique by which a customer is persuaded to enter into a contract on the basis that he will be able to recover the money he has agreed to pay out under the contract by receiving a rebate or commission for introducing other customers.

The important factor is not whether a customer can earn a rebate or commission or spotting fee – these are permitted provided the promise of such fees is not used to talk the customer into the contract in the first place.

Misleading representations about certain business activities

Federal law prohibits the making of false or misleading statements about the profitability or risk of a business that is claimed by the seller to be able to be carried out in a person’s home.

It is also illegal to make false or misleading statements about the profitability or risk associated with a business activity in which a person has been invited to invest time or money.

Pyramid selling

Pyramid selling is prohibited under Australian law. Pyramid selling schemes vary in their structure but the basic characteristics are:

• Payment by a person for a right to become a distributor of goods or services
• The receipt of some benefit or award for recruiting new distributors

The whole purpose of such schemes is to make money from recruiting new distributors rather than from selling goods or services. These schemes are outlawed because it is often the case that people who participate lose their money and very few benefit.

Contact Sales (ie. Door-to-Door Sales)

In Victoria, the Fair Trading Act is also designed to protect the consumer in door-to-door sales situations, that is where a salesperson calls at a person’s home for the purpose of selling goods or services.

The Act applies to sales at a customer’s residence and at their place of work and covers sales of over $50.00.

The legislation does not apply in certain circumstances, including situations where:

• the salesperson comes to their home or place of work at a customer's request
• the sale is conducted over the internet or telephone
• the sale is for an amount more than $5,000
• the whole of the purchase price in cash or cheque is handed over at the time the agreement is made

The effect of the Act is that an agreement will not be enforceable by the seller unless it is in writing and a copy is given to the customer at the time the agreement is made.

A prescribed notice must also be given to the purchaser before they enter into the agreement. If the agreement is in handwriting, it must be legible and if typed it must be in print of a certain size.

The information that the seller must supply include:

• the total cost of the goods or services
• the fact that there is a 5 day cooling-off period
• how to exercise any right to cool-off
• supplier's contact details

If the seller does not provide the purchaser with such notifications, the cooling-off period automatically extends to 30 days.

Unsolicited goods or services

Federal and state laws make it an offence to assert a right to payment from any person for unsolicited goods. It is not unlawful to send the goods but it is prohibited to demand payment.

These laws are aimed at preventing situations where consumers have been billed for goods sent to them which they did not request.

You are not liable for payment for unsolicited goods. Such goods will in fact become your property if not collected by the seller after either:

• One month from the date the sender is notified to collect them. You send a written notice to the sender with your name, your address, the address where they can collect the goods, and a statement that the goods are unsolicited.
• Three months after the date you received them even, if you don’t notify the sender.

FURTHER INFORMATION

This Information Outline is provided courtesy of McKean & Park Lawyers & Consultants who are experienced in this area of law. They are located at 405 Little Bourke Street MELBOURNE VIC 3000 or call them on (03) 9670 8822 if you would like more information on the legal topic, or you wish to obtain formal advice regarding your situation.

McKean & Park was established in 1863 by James McKean and thrives today with 20 professionals specifically in all major areas of practice including Workplace Relations and Anti-Discrimination Law. The firm is proud of the fact that many of its Lawyers are accredited specialists approved by the Law Institute of Victoria. McKean & Park is committed to providing clients with comprehensive and innovative legal services delivered promptly in a professional and cost effective way.