When a business first offers a service to clients, a common option is to provide a quote. Why? This gives the client an indication of the price of the services, assists in managing client expectations and helps the client determine whether the service is worth the expense.
But how do you know if a quotation is legally binding?
Generally, a quotation will become legally binding where the elements of a contract have been established (we’ll explore this point below).
However, it’s not enough to rely on the offer itself to create a legally binding agreement. The client also needs to understand that they are entering into a contractual agreement which involves legally enforceable obligations.
It’s important to be clear about any intentions and legal obligations when offering clients a quote. In this article, we’ll go through the elements of a contract and what makes quotations legally binding on your clients.
Is A Price Quotation Legally Binding?
Yes, a price quotation is legally binding.
However, the price quotation can only be considered legally binding if the party being offered the good or service (so in most cases, the customer) accepts the offer.
Without acceptance, the quotation simply remains an offer and cannot be considered legally binding.
So, What Is An ‘Offer’?
If we consider the principles of contract law, an offer is one of the key elements of a contract.
An offer is an expression or proposition by one party to another in exchange for something, commonly a cash payment. The party that is receiving an offer will then be able to accept or decline it.
For example, if someone says they can purchase your car for $100,000, this is an offer. It is not legally binding unless you accept that offer and pay that price.
Put simply, the acceptance of an offer leads to a binding contract. However, it’s important to note that this is only one key element of a contract, and you need to consider the agreement in light of other elements to determine its enforceability.
What Makes A Contract Legally Binding?
A contract becomes legally binding when all the elements of a contract are established. Once all the elements have been established, the agreement is then enforceable in the eyes of the law.
So, if one of the elements has not been fully met, the contract may be considered void or unenforceable.
However, whether a contract is valid or not also depends on the court’s assessment of your specific circumstances.
Elements Of A Contract
As mentioned above, offer and acceptance are only two of the key elements of a contract. The other elements of a contract that need to be established are:
- Offer and acceptance – a proposition and then an approval of the offer
- Consideration – there must be an exchange of benefits for all parties, often a cash payment
- Intention – all parties must clearly intend to be legally bound by their contractual obligations
- Capacity – the parties to the contract must be considered of age and capability to sign a legally binding document
- Legality – the document must not be based on or contain clauses that breach the law
What Is A Binding Quotation?
A binding quotation is essentially a quotation that can be enforced by the courts if it is ever disputed. If the customer accepts the offer made in the quotation, the client and customer will be engaged in a contractual relationship based on the terms of the quote.
However, not all quotations are legally binding. Certain quotations are just price estimates and tend to give a ballpark number regarding how much a particular good or service will cost. Whether or not it is binding will depend on how clearly you represent this to the other party.
Zac has recently purchased an investment property that needs some work. He consults Lana, a contractor, for a quote. Based on the information Zac provides, Lana gives him a ballpark number of the time and cost a project like this would require.
Lana ensures she makes it clear to Zac that it is simply an estimate and in order to provide him with an actual quotation, she will need to come and see the property for herself. Zac agrees and once Lana surveys Zac’s property, she provides him with a concise price and timeframe.
She makes it clear to him that this second quote will be legally binding.
Initially, Lana provided a non-binding quotation. However, after surveying the property, the second readjusted quotation amounted to a binding quotation.
What Did The Supreme Court Of NSW Say?
Contract law is highly regulated in Australia and is an area of law that appears frequently before the courts. More specifically, the Supreme Court of NSW has stated that when preparing a quote that is not intended to be legally binding, the business must state this very clearly in the document.
This reinforces the key element of intention in contracts, where parties need to make it clear that the obligations are legally binding. This way, they know the nature and potential legal consequences of the transaction they are entering into.
However, like we mentioned before, each contract’s legal status will depend on what the court decides during a dispute.
For example, in some cases, an estimate was enough to constitute a legally binding quotation. This is what the courts determined in the case of Megalift v Terminals – let’s go through this case in more detail.
Megalift v Terminals 
In Megalift v Terminals , there was an argument as to whether the quotation provided by the business could constitute as a contract. The Supreme Court found that an estimate can be interpreted as a legally binding quotation as long as there is an element of offer and acceptance.
Megalift and Terminal had entered into a contractual relationship, where Megalift was required to conduct services for Terminal. In providing these services, Megalift ran into issues they had not foreseen, prompting them to issue a revised contract with additional cost and terms.
This was entered into on the 1st of May 2006. The matter for the Courts to decide was whether a contractual relationship existed prior to the 1st of May.
After reviewing the facts, the Court found that the parties did indeed have a contractual relationship prior to the 1st of May as the initial quotation met all the elements of a contract, giving rise to a legally binding agreement.
Therefore, if a business intends for their quotes to remain an estimate as opposed to a binding fee, this needs to be expressly stated on the document. This case sets a precedent for quotations to be considered a legally binding contract.
Are Verbal Promises Legally Binding?
Yes, if a quotation is made verbally then it can still be legally binding. However, legally binding quotations are harder to enforce as it is difficult to prove their existence.
Additionally, when something is not written down on paper, it increases the chance of conflicts and disagreements arising between the parties. For example, you may have promised a service for $380 but the client insists you had stated it would cost $350. In order to avoid any conflict that can result from miscommunication, always provide your quotations on a written document.
This way, you have an official record to refer to during proceedings.
I Want My Quote To Be A Binding Offer – How Should I Word The Quotation?
If you want your quote to be legally binding on the other party, your first step should be to get it all in writing. The quotation itself should also clearly state that it intends to be legally binding in nature.
There are a number of ways to express an intent for the quotation to be a legally binding offer should the client choose to accept it. Generally, a good quotation statement will have the following elements:
- Be written in clear and simple language
- There should be no ambiguity. A good way to test this is to see whether a reasonable person could conclude that the quotation is legally binding.
- The statement should be accessible on the page and not lost within other words
An intent for a quote to be binding can be represented in several ways. The below statement is one example:
“This is a legally binding document and you will be bound to the terms of this quotation.”
Determining whether a quotation is legally binding will depend on the language that you’ve used, the way you have communicated this to the customer and whether you have established the elements of a contract.
Generally, quotations are legally binding, but it’s always best to make this crystal clear to avoid any legal headaches later.
Our contract lawyers are highly skilled in drafting clauses that will protect you and your business. Additionally, If you would like to know more about contracts, our Contracts Guide can also provide you with some guidance.
For more information regarding contracts and quotations, reach us at 1800 730 617 or firstname.lastname@example.org for a free, no-obligations chat.
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