“I do”, they did, she said, he said, it’s over, ouch that’s expensive!

No, I’m not giving marriage advice. My involvement with contracts has ranged from 100 plus page contracts to verbal contracts, both selling and buying. The most important contract I have made, is marriage, which is now in its 40th year. I wonder with the number of marriage break ups, that our society doesn’t understand what a contract means and the implications of when we breach a contract. I’m not a lawyer so below I make comments about contracts rather than providing advice about contracts.

There are three points I’d like to raise:

1.    What is and is not said in a contract?

2.   Verbal contracts are potentially as strong as the 100-page document, &

3.   Be mindful of the not so obvious implications.

1. What Is And Is Not Said In A Contract?

The more detailed contract sounds like a real benefit, however that indicates that everything required is in fact covered. This can work in your favour or against.  Think about the amount of detail you want covered.  Also, the more detail there is, the more potential you have for negotiation in drafting the document which could result in additional legal cost.

2. Verbal Contracts are Potentially as Strong as the 100-page Document

I was once involved with a contract that had run out of term, however, we continued on a verbal basis.  The contract involved expensive harvesting equipment.  I wanted to stop the contract but because the contract came out of term and continued verbally, the notice period became when it would be reasonable to depreciate the harvesting equipment involved, which was significantly longer than I expected.

3. Be Mindful Of The Not So Obvious Implications

The not so obvious implications include: The terms of the notice period to terminate a contract. Notice terms like “no more than 6 months but no less than 3 months otherwise an automatic rollover for 12 months”.  These dates need to be placed in calendars to ensure you don’t get locked in for longer than required.

  • The rights of the other party to put caveats on your business including the right to place a security interest over your business. These can remain for many years even though you may no longer deal with the supplier.  Of note is that these need to be released if you want to sell your business.  It would pay to find out who has these interests on your business rather than having to deal with this during due diligence.  See https://www.ppsr.gov.au/ppsr-overview
  • I don’t know of many people who fully read the terms and conditions before accepting. The amount of detail in reviewing a contract should be based on the value and implications of agreeing.  See https://www.business.gov.au/Info/Plan-and-Start/Start-your-business/Independent-contractors/Understanding-contracts .

It pays to get out all contracts you have signed and review what you and other parties have agreed to. Don’t wait until the bags are packed. When in doubt get advice, we normally insure, so to get advice is a great form of insurance.  You can get advice from FTMA, solicitor or business adviser.



This article was written by Chris Hay of Manufacturing Logistics.