an agreement

an injury

a relationship

a purchase

Agreements (also known as "Contracts") that are changed or varied at a later date before the original agreement ends have the effect of adding to the obligations of the parties to the original agreement. A contract variation adds, removes or changes the "Terms" (also known as "Terms and Conditions" or "Terms of Agreement") of the original contract and can come in either a verbal or written form depending on the circumstances. For example, a written agreement to build a new kitchen where the customer later asks the kitchen company to install a granite benchtop instead of a laminate one is making a verbal variation to the agreement.

Variations to agreements are mini agreements in themselves and must still meet the same requirements as any verbal or written agreement.

Below are the basic elements that a court requires to be proven for a contract variation to be enforceable.

Contract Variations: What needs to be proved

1

An offer


Watch out for

the varied terms of the offer are lawful

offer was rejected

offer was withdrawn

expiry of offer

there was a counter-offer

uncertain or incomplete terms

commercial offers over $40,000

2

Acceptance


Watch out for

acceptance must be communicated

a term that outlines a procedure to vary

proof of acceptance

unfair pressure

3

Consideration


Watch out for

no additional consideration provided

adequacy of consideration

the variation being a pre-existing duty

4
Intention to create legal relations


Watch out for

where no additional consideration provided

commercial agreements

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What might a court do?


Consider the following

look at the validity of the original agreement

look at if a contract variation exists

look at the terms of the variation of agreement

make and order for breaching or terminating the agreement

And here's some more detail

1An offer

The contract variation will start with an offer by one party. The offer must be for something in exchange for something such as a product or service. The verbal or written variation to the agreement must be on proposed terms (e.g. the product/service being offered and the price to be paid). An example is a verbal offer over the phone for a contract variation to a mobile phone agreement to move onto a higher monthly plan.

Circumstances to watch out for

the varied terms of the offer are lawful

Some contractural variations are not allowed by the law, such as replacing the names of the parties.

offer was rejected

If an offer was rejected by the party it was directed to, then it ceases to be an offer.

offer was withdrawn

If the party who made the offer then withdraws it, then it ceases to be an offer provided that it was not already accepted by the party the offer was directed to.

expiry of offer

If the offer expires, then it ceases to be an offer. If the varied terms do not include a specific discussion on how long the offer is open for, the offer expires at what would be a "reasonable" time for that kind of product or service.

there was a counter-offer

If an offer was not accepted, but the person who the offer was directed to made a counter-offer, then the orginal offer ceases to be an offer.

uncertain or incomplete of terms

If important or "essential" terms in an agreement are uncertain, incomplete, vague or meaningless; and if additional evidence cannot establish what the term was meant to mean, then there cannot be a valid offer.

commercial offers over $40,000

The Australian Consumer Law will imply terms (e.g. guarantees that products are fit for their intended purpose) into agreements unless it is a business related transaction where the value of the product or service is over $40,000.

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2Acceptance

Acceptance by the party who the offer to vary the contract is directed to. This must be to the other party to the original agreement. An acceptance shows a willingness by that party to accept the offer to vary the agreement without further negotiation, and be bound by the proposed terms in the offer.

Circumstances to watch out for

acceptance must be communicated

An offer to vary an agreement cannot be considered accepted if the acceptance was not communicated to the party that made the offer.

a term that outlines a procedure to vary

If the original agreement is in writing, there may be a term in the orginal agreement that outlines how the agreement can be varied. Such a term may specify how an offer to vary an agreement can be accepted (e.g. in writing or by post). This will depend on the formality of the original agreement. In the case of more informal verbal/handshake agreements, if the parties discussed rules on how their agreement could be varied in negotiations of their original agreement, then these rules would apply.

proof of acceptance

There is rarely an issue proof of acceptance of a variation to an agreement in writing. While a verbal acceptance is a valid acceptance, it is wise to have a witness present, or to send an email confirming acceptance so that there is proof establishing the variation of the agreement should an issue occur at a later date. A verbal acceptance followed by both parties performing their obligations under a verbal agreement of the contract variation may also be sufficient to establish proof of acceptance.

unfair pressure

There is no valid acceptance if one party unfairly pressures the other party into accepting a variation to an agreement.

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3Consideration

Something of value must be exchanged for what was offered in the variation. It could be something of value given or promised such as money, a service or even a peppercorn.

Circumstances to watch out for

no additional consideration provided

Any variation to an agreement must have fresh or additional consideration exchanged by the parties. This means that the value exchanged in the original agreement will not be viewed as consideration for the contract variation to be enforceable.

adequacy of consideration

Any consideration can be good consideration, therefore it need not be adequate consideration. This means that a will be valid even if one party to the agreement does a bad deal and offers greater value than what is exchanged in return.

the variation being a pre-existing duty

A promise by one party that they were already bound to do under the terms of the agreement is not viewed as adequate consideration.

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4Intention to create legal relations

This is to ensure that both parties wanted to be legally bound by the variation to the agreement. Being legally bound means that the agreement is enforceable in a court. Compare this with being morally bound which is not enforceable in a court, no matter how much one party feels hard done by by the other party.

Circumstances to watch out for

where no consideration provided

If there was no consideration exchanged then it may stand to reason that the parties did not intend to be legally bound by the agreement.

commercial agreements

In business to business or commercial agreements, it is usually presumed that the parties are intended to be legally bound.

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What might a court do?

:{look at the validity of the original agreement

A court will look to see if the orginal agreement is valid and enforceable (whether verbal or written) by going through the four steps of offer, acceptance, consideration and intention to create legal relations. Assuming it is valid, the court will then look to see if there is a term in that agreement that regulates a process as to how a contract variation should be made, and whether this process has been followed. Also, if the original agreement has expired or the obligations by both parties bave been completed, then no variation to this agreement will be possible.

:{look at if a contract variation exists

It may be that one party will deny that the verbal variation to an agreement exists at all which will require the court to look at whether there was an offer and acceptance. An agreement may be found not to exist if the party claiming that there was agreement cannot provide proof. This is less likely to be an issue where there is a witness to the agreement, some follow-up documentation, or some action showing the parties performing their obligations of the agreement.

:{look at the terms of the variation of agreement

Disputes around contract variations will usually occur because one party will want to get out of performing their part of it. In making their decision, courts will focus on the detail of the terms of the agreement to determine what it was that the parties agreed to. Because the terms will be verbal in the case of verbal agreements, the most difficult situation will occur where it will come down to one party's word against the other. To do this, the court may look to the credibility of each party's claim on what the terms were, and the actions each have taken since the agreement was made and infer what the terms were from their analysis.

If the terms of the variation are uncertain, incomplete or unfair (in the case of consumer agreements) in spite of all the 4 elements above being present on the face of it, a contract variation may be void, or a court may remove a term to keep a contract on-foot, or vary or imply a term to reflect the presumed intentions of the parties. For this reason, variations to a contract should be thought through fully so that the variation integrates consistently and harmoniously into the original agreement. Importantly to know, courts will be reluctant to void an agreement and will do what they can to keep a contract on-foot.

:{make and order for breaching or terminating the agreement

Written agreements may contain a term that specifically caters for terminating agreements, but verbal agreements may not. If such a term exists then courts will look at the circumstances that termination is allowed. There can be serious consequences if a party decides to not fulfil their part of an agreement (called "repudiation") or to terminate an agreement because the other party breached a term - these can include a monetary award (called "damages") or ordering that a party perform their part of the agreement. A party can only terminate an agreement for breach of an "essential" term, which is a term so fundamental to the agreement, that the terminating party would not have entered into an agreement unless they were assured that the obligation in the term would be strictly performed. The point here is that termination should not be taken lightly as courts may penalise a party for wrongfully terminating an agreement.

Consult a lawyer if you are unsure about your legal situation.

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