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Businesses enter into written contracts so that both parties are sufficiently clear on what their rights and obligations are. In contract law, if a dispute arises between the parties, one of the first steps will be ascertaining what the terms of the contract are, including their meaning and effect. Unfortunately, determining what terms a party has contracted to is not always straightforward, particularly when the contract consists of oral terms in a written contract. In this article, we unpack whether verbal terms can be included in a written contract and provide some tips for entering into contracts.   

What Is a Contract?

A contract is a promise between two or more parties intended to be binding on the parties. You can put contracts in place for all sorts of reasons, ranging from a business supplying goods or services to other businesses, a business employing workers and shareholders agreeing to a shareholders agreement.

For a contract to be binding and enforceable, the elements in the table below need to be met. 

Intention

There needs to be an intention between the parties to be bound by the agreement.

Offer and acceptance

There needs to be a clear offer by one party that the other party accepts.

Consideration

There is some value passing between the parties, usually money in exchange for goods or services.

Capacity

The parties need to have the capacity to enter into the contract, for example, they should not be minors or intoxicated.

Certainty 

The terms of the agreement need to be sufficiently clear.

 Furthermore, a contract does not need to be in writing to be binding and enforceable. A contract can be:

  • in writing – this is your typical written contract;
  • an oral contract, meaning you make it verbally;
  • implied, for instance through conduct; or
  • a combination of the above.

There are circumstances where a written document does not contain the whole of the agreement between the parties.

An obvious example of this is when your written offer is accepted verbally. In this scenario, the contract between the parties is both in writing and an oral agreement. Therefore, you must look at the oral acceptance of the offer when considering what the terms of the contract are.  

Pre-Contractual Statements

A common verbal term a business will want to include as part of a written contract is a pre-contractual statement. These are statements made prior to the parties entering into a contract. Some of the most common types of pre-contractual statements are in the table below.

Mere puff

These are statements not intended to be taken seriously or ‘sales talk’.  A classic example of mere puff is a used car salesperson describing a car as ‘an absolute bargain’. You cannot interpret these types of comments to form an oral agreement as part of the contract.

Representations

This is a factual statement by one party to induce another party into entering into the contract. For example, by showing someone reviews on your website. Often, these are not intended to be binding or a promise and do not form part of the contract. However, the Australian Consumer Law sets out specific rules around misleading and deceptive conduct that businesses should be careful of when selling their products or services.

Terms

Sometimes, when parties discuss a contract, they may orally discuss terms that they intend to form part of the contract. If you want to include oral terms as part of the written contract, it needs to be clear that the parties intend such terms to be promissory in nature.

Entirely Written Contracts

Where the parties to a contract have reduced the contract to writing, there is an assumption that the written document is a ‘binding record of the contract’. Therefore, the parties cannot alter or vary the terms of the contract verbally. Of course, there are exceptions to this presumption, which include:

  • to provide evidence that there was a mistake in the contract (for example, a typo in the price);
  • where a party has tainted a contract by fraud;
  • where it is clear in the contract there was an intention to only address one aspect of a broader arrangement; or
  • to provide evidence to explain the meaning of a term in the contract.

Key Tips for Entering Into Contracts

Having a clear understanding of what your arrangement is with another party is very important for avoiding misunderstandings and minimising the chance of a dispute arising. 

  1. Make sure you put every contract you enter into in writing. 
  2. If the other side has made some verbal representations, make sure you include these representations in writing in the contract.
  3. Consider including an ‘entire representations’ clause in the written contract. This ensures the parties do not intend for any statements, promises and representations made outside of the written contract do not form part of the contract. This will ensure contractual certainty for you.
  4. When negotiating a contract, particularly if you are selling your goods or services, make sure you are not engaging in any conduct that is likely to mislead or deceive. The courts may consider this to be an infringement of the Australian Consumer Law.
  5. If you and the other side agree to some changes to a contract, make sure you vary the contract in accordance with the contract. Usually, there will be a clause allowing the parties to amend the contract in writing.

Key Takeaways

There are situations in which you can include oral terms in a written contract. However, it is best practice is to put the entire contract into writing so that it is easy to interpret what the parties intended when entering into the contract. If the parties to a contract are in dispute over whether a verbal term should be included as part of the written contract, focus on the intentions of parties to determine whether or not that verbal term is intended to be binding. Of course, verbal terms are very difficult to prove, and it is important to have a lawyer assist you in these situations. If you are involved in a contractual dispute, you must seek legal advice early to protect your rights and understand your legal position.

If you need help drafting a contract or entered into a contract and are unclear on the exact terms, contact LegalVision’s commercial contracts lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is required for a written agreement to be binding?

For an agreement to be binding, there must be intention, offer and acceptance, consideration, capacity to enter into a contract, and certainty.

Can I include a pre-contractual statement in the terms of a contract? 

A common verbal term a business will want to include as part of a written contract is a pre-contractual statement. These are statements made prior to the parties entering into a contract. The most common types of pre-contractual statements can be categorised as mere puff, representations, and terms.

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