A painter verbally agreed with a home owner to paint the owner’s bathroom, and agreed a price.  While he was at the house, the home owner asked if he could paint the small separate toilet room as well, which he did. 

The painter issued an invoice for the painting work for both the bathroom and separate toilet room.  The home owner refused to pay for the toilet room as he thought it was included in the original cost they discussed verbally, because the painter had not said otherwise when he agreed to paint the separate room.

As there was no written contract it was hard to confirm the scope of the original work, let alone any variation of that original work.  The painter spent a lot of time and money trying to fight this in the Disputes Tribunal and lost as the Tribunal sided with the home owner.

Contracts play a major role in our day-to-day life and govern many of our relationships, including those with an employer, service providers, retailers, and contractors. It is important to know how a contract is formed to figure out whether a binding agreement exists.

A contract is formed through an offer, acceptance of that offer, and consideration. Consideration is something of value which is exchanged for the offer - often this is money.

Additionally, the parties to the contract must have intentions to be bound by the contract, and be held responsible to uphold their duties under the contract.

Contracts can be formed either in writing or verbally as long as the above requirements are met (yes, handshake agreements can be binding contracts!)

However, major issues can arise with oral agreements. If the parties fall into a dispute, as above, it can be difficult to ascertain what the parties actually agreed to because there is no record of the terms of the agreement.

This means that any dispute resolution entered into by the parties will take longer to resolve and therefore become increasingly costly.

The best practice is to formulate a contract in writing, so it’s always easy to refer back to what was agreed between the parties.

Some contracts are legally required to be in writing such as the sale and purchase of property.

Likewise, contracts for building, construction, and painting work valued at $30,000 or more are also legally required to be in writing. While contracts not reaching the $30,000 threshold do not have to be written, it is best practice to do so in order to avoid complicated disputes in the future.

If you are unsure as to whether a binding contract exists, it pays to get legal advice from a legal professional to help you understand your rights and obligations.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.