Written Contracts Versus Oral Contracts

A common misconception is that for there to be a contract, it must be in writing. However, with some exceptions, some of which are discussed below, an oral agreement can be a binding contract.

It will be binding so long as all the elements to create a contract at law are present. Those elements are offer, acceptance, consideration, intention, and certainty. The difficulty with oral agreements is that they can make it a challenge to prove these elements are in fact present.

When must building contracts be in writing?¹

Section 67G of the QBCC Act requires that building contracts be in writing. In this context of course, a contract for the carrying out of plumbing work worth less than $3300 does not fall within the section. However, it has been held that this section does not make an unwritten contract unenforceable.

Sections 13 and 14 of Schedule 1B of the QBCC Act require that contracts for the carrying out of domestic building work be in writing and signed by each of the parties. Once again, a contract for an amount of less than $3300 does not fall within this definition of domestic building contract.

Decisions under the former Domestic Building Contracts Act, which had similar provisions, indicate that at least in some situations, the effect of those sections is not to make an unwritten contract unenforceable. Those cases also say that even if that were the case, the contractor could recover on what is known as a quantum meruit basis, that is, the contractor is entitled to a reasonable price for the work done under the contract.

There are two problems with suing for a reasonable price. The first is that it is more expensive to sue for a reasonable price, as you have to call evidence as to what a reasonable price is. The second is that there is a chance that a court or tribunal will hold that a reasonable price is less than what was in the contract. So that you may recover less than what was agreed in the contract for your work.

Of course, even though the contracts may be enforceable, or you can still be paid, it is still an offence to breach these sections. And the QBCC has been known to prosecute such breaches.

_{1. This discussion is in relation to building contracts only. There are other situations in which contracts must be in writing the most common of which would be contracts for the sale of land and guarantees.}

Benefits of written contracts

There are many benefits to having a contract in writing. Some of these are outlined below:

Facilitating agreement

The benefits of a written contract start before it is signed. The circulation of a draft written agreement enables proposed terms to be discussed. It facilitates the clarification of expectations and thereby the addressing of any concerns before the contract is finalised. This identifies potential disputes before they develop and, most importantly, before the contract is actually signed. This helps to ensure that the relationship gets off on the right foot and lays the foundation for cooperation during the contract.

Clarity

Written contracts provide clarity that oral agreements do not offer. For example, an oral contract might be misinterpreted or lost in translation or over time.

Dispute Resolution

When disputes between parties to a contract occur, a written agreement will ensure the dispute resolution process goes as smoothly as possible. Further, a written agreement might include provisions for dispute resolution options, such as mediation. Finally, where disputes progress, and the matter goes to court, the court will refer to the written agreement to resolve the dispute.

Managing and mitigating risk

Risk is an inherent feature of all building contracts. A written agreement helps manage these risks by making a clear allocation of the risk between the parties and outlining the consequences of non-compliance or breach of contract. By specifying the consequences of a breach of contract in writing, dispute resolution procedures, and how the contract can be terminated, disputes may be avoided.

Plumbing-specific contracts

MPAQ has created plumbing specific contracts that have undergone extensive industry consultation and testing to ensure they are specifically suited for Plumbers in Queensland.

Purchase Contracts

Contracts for less than $3300

The benefits of written contracts are as applicable to those for less than $3300, as for contracts above that amount. Whilst we accept that it is difficult to get things in writing for the small jobs, it is possible to provide people with a quote that is subject to terms and conditions of the contract, which can be found on a website or via a provided website link.

What can go wrong?

Some years ago, the writer was involved in a case where the Plaintiffs had decided to close a caravan park they owned so they could develop the land. They put the buildings huts et cetera, that were part of the caravan park, up the sale.

They entered into a written contract to sell 33 demountable cabins. This contract went through without any hitches.

The dispute was over the sale to the same party of another building compromising 10 units or suites for accommodation. The plaintiffs said there was a verbal contract between a representative of the purchaser and two representatives of the Plaintiffs. The Plaintiffs relied on an invoice for the building at a price of $120,000 as evidence of the contract.

The court also referred to a written list of things that the purchaser was interested in buying which had prices noted on it, including a price for the ten unit building of $120,000.

Despite this, the court found that the parties did not intend to enter into a binding contract. Had there been a formal written contract, this finding would have been impossible. The plaintiffs lost.

For further information regarding the above, please contact the author, Michael Cope on 07 3223 5939 or email m.cope@cornwallsqld.com.au. MPAQ members have a free 20-minute legal consultation with Cornwalls as part of your member benefits.

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Disclaimer: This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.

Article by Michael Cope, Special Counsel, Cornwalls