A contract is an agreement between two or more parties that is legally enforceable.  For any agreement to be legally enforceable it must satisfy five key elements.  Those elements are: offer, acceptance, consideration, intention, and certainty. 

Getting these right can be the difference between getting paid for the work you do and not. In a recent case a terms of trade allowed for all of the expected terms, including a personal guarantee of a company’s payment.  Unfortunately, the guarantee was unsigned and therefore not enforceable and the company was insolvent. In this case there was acceptance by the company of the contract but no written acceptance to be a guarantor.  It is vital to make sure that the contract is correctly completed before proceeding to do the work if you want to take the hassle out of getting your money out of the debtor’s bank and into yours where it belongs.

 We briefly cover each of the five elements below:

Offer

One party must make a clear offer to another party.  For example, if you offer to install a bath and shower for $2,000 there will be a series of communications between the parties which may result in an agreement.  These can be written or verbal or both.

Acceptance

Agreement is when one party accepts the offer.  For example, when the home owner agrees to the offer to install the bath and shower for $2,000.

The acceptance can be verbal or written but if the offer is made in writing and part of the offer requires acceptance to be in writing, then acceptance must be in writing.

Consideration

This is what each party agrees as their part of the bargain.  You offer to install the bath and shower.  The buyer agrees to pay you $2,000.

Intention to create legal relations

In order for there to be an enforceable contract there must be an intention between the parties to enter into a legally binding agreement.  Usually the existence of an agreement with sufficient consideration will be enough. 

In the bath/shower installation example, a clause which says that the contract is not binding unless signed by the parties means that until they both sign there is no intention to be bound.

Certainty

The terms of the contract must be certain.  Terms that must be certain include those of consideration, what the contract is for, and how the contract will be carried out and when.  For example: the bath/shower model, the price, and the details and date of installation.

The terms should be expressly agreed, but in certain circumstances terms will be implied.  For example: that the bath and shower would be in as new condition (unless 2^nd hand was specifically agreed).

The importance of a contract

It is important to ensure that anything intended to be an enforceable contract has all five of these elements.  Contracts can be verbal but if verbal you can end up with disputes as to the agreed terms.  Putting the terms in writing and getting written acceptance makes the terms easier to prove and enforcement much more likely.

Terms of trade will usually provide much more detail and protection for you when contracting to provide your plumbing services.

The Construction Contracts Act (“the CCA”)

The CCA applies to all construction work – which is defined to include plumbing.  It is not possible to contract out of the CCA.  If any contract attempts to contract out then that provision of the contract will not apply. 

There are different provisions for commercial and residential contracts but the CCA applies to all agreements made verbally, in writing or partly in writing and partly verbally.  This means that if there are any disputes as to what was agreed, to the quality of the work, or to the price, then the dispute resolution provisions in the CCA will become available to either party to settle the dispute.  This will be the case whether the agreement was made in writing or verbally.

How we can help

If you need help putting together your terms of trade, ensuring that they provide what you want them to, or if you have any other contractual issues then call us on 0800 733 444.