Renting a car, dealing with insurance companies or banks, entering into an interest free arrangement to purchase goods, even entry onto some websites or downloading information – we make contracts every day.  In fact we enter contracts so often, we sometimes overlook that these types of contracts generally require acceptance of standard terms and conditions. Claire Tyler provides some useful hints to help avoid signing up for a nasty surprise.

Terms and conditions are often written in fine print on the back page of a contract or in a separate section of a company’s website.  It is easy to overlook or ignore them when entering the contract.  As a result, many people enter contracts on a regular basis without truly understanding the implications of the terms and conditions.

Take the recent real case of a Sarah* and Mark, a couple who agreed to purchase their dream property which was subject to the sale of their existing property.  When their property didn’t sell, they assumed that this meant that they would be let out of their agreement to purchase the dream property.  What they hadn’t understood was that their standard form purchase agreement required that they “do all things reasonably necessary” required to enable them to sell their property.  This was in the fine print of the agreement that they had clearly signed but unfortunately without reading and/or understanding first!

Because they failed to understand what this provision really meant, Sarah and Mark didn’t do everything they “reasonably” could have to enable them to sell their existing property.  This led to:

  1. The sellers of the dream property taking Sarah and Mark to court for breach of the contract;
  2. Sarah and Mark being ordered to compensate the sellers for the difference between the price they promised to pay for the dream property and the price the sellers managed to resell the property for;
  3. Sarah and Mark also having to pay interest at the contracted rate of 14% on the full amount of the purchase price until settlement of the resale contract.

Sarah and Mark are now going to be nearly $400,000.00 out of pocket because they did not understand what the fine print in their contract required them to do, and therefore did follow those provisions.

Often the terms in contracts you make may not be negotiable.  If you don’t like a term of your insurance contract, for example, it is not likely that the insurance company will change it to suit you.  Nevertheless, it is still essential that you read and understand the contract so that you can either: 

  • Ensure that you comply with it; or 
  • Decide not to accept it, and to look elsewhere.

This sounds like simple advice, but it is important that we all remember the basics:

  1. Read your contracts thoroughly and make sure that you understand the implications of every provision. If you don’t understand then you should ask, and may need to obtain professional advice.
  2. If there is a provision that you refuse to agree to, you should either: 
    • Negotiate an alternative, if possible; or 
    • Not enter the contract.

This is probably not new information for most of us, but the case of Sarah and Mark does serve as a timely reminder: failure to read and understand the terms and conditions of the contracts we make does not excuse us from compliance with them and, as in the Sarah and Mark’s case, can result in a nasty surprise!

*whilst the case is real the names have been changed for this article.