A quote is a contract if it is signed and accepted by both the provider of the quote and the person receiving it. Until a quote is accepted, it is not a contract.
Understanding this difference is important for any person working in the skilled trades as it provides them with a clearer picture of their legal entitlement if they have any issues.
Before you can understand why a quote may or may not be considered a legally binding contract, we first need to understand what is required for a contract of any kind.
There are five essential requirements needed to form a legally binding contract.
These are the following:
Let’s break these down.
The first requirement is consideration.
A consideration refers to something of value that is exchanged between the two parties in a contract.
For example, the promise to deliver a service is matched by the promise of payment for that service. These promises form considerations.
In the case of providing a quote, the consideration here equates to an offer from the provider and the promise of payment from the customer.
Essentially for any contract to be valid, a form of exchange must occur between the two parties or an exchange of promises that represent the intended exchange.
These promises are only valid if they occur in the present or future. So if you completed a job for a customer and the customer promised to pay you after the work was done, this wouldn’t be a valid consideration.
It may sound obvious, but for a contract to be valid, both parties must clearly display their acceptance of that contract.
There is a proposition and then an approval.
In the case of a quote, the proposition would be the document featuring the included products and services and their price. The acceptance would be a written or electronic signature provided by the customer.
While verbal acceptance could be used to create a valid contract, unless there was a way to prove this acceptance occurred, it would be difficult to defend it in a legal dispute.
This is probably the most important and ambiguous requirement for a legal contract. Getting this right can spell the difference between whether a quote is considered legally binding or not.
For a contract to be binding, both parties must show intention to create and participate in that contract.
This means that if there is any ambiguity as to whether or not your contract can be considered legally binding, then the very existence of that ambiguity could invalidate it.
In other words, if your quote isn’t presented like a contract and your customer isn’t aware that it’s a contract, then it’s not a contract.
The best way to make sure intention is present when creating any quote is to have clear terms and conditions stating that your quote is a contract and to verbally inform the customer.
You should also get them to sign the document, acknowledging they have read and agreed to your terms and conditions (where it is stated that the document is a legal contract).
Determining capacity works in the same way as determining capacity in other situations. For a contract to be valid, both parties must have the capacity to give their consent or acceptance.
For example, a person wouldn’t have capacity if they had a medical record declaring them to be in an unfit mental state or if they were a minor (under the age of 18).
There are some exceptions to this rule, such as employment contracts for under-18s, however, in the case of quotes, a minor would not have the capacity to enter into that contract.
Unsurprisingly, if the contents of your contract are illegal then it is not valid.
In the example of a quote, if a builder quoted for the construction of a building that violated local zoning laws, then that quote would be invalid.
So is a quote a legally binding contract?
As explained above, a quote can be a legally binding contract if it meets the necessary requirements.
In most cases, if presented correctly, a quote can be considered to be legally binding, once it has been signed.
This assumes that the quote is properly laid out, with an accurate price and is signed by the customer. If there is any ambiguity as to whether or not the document is a quote (ie it looks like an estimate), then it probably wouldn’t stand up in a court of law.
It’s also important to recognise that this agreement swings both ways.
Once that quote is signed, the customer is now expected to honour the agreement and must proceed with the payments once the terms of the quote are fulfilled.
This means that if the customer was, for example, getting an extension built, once they’ve signed that quote they can’t then turn around and say they don’t want it anymore.
But on the other side of the coin, the person who provided the quote must also make sure they deliver the terms as described.
This means that if the builder who provided the quote miscalculated the cost of the cement they needed, they’d still have to honour the original price, even if it put them out of pocket. They could only change this if the customer agreed to the changes.
If either party wants to make changes to a quote once it is signed, be that a change in price or addition or subtraction of a certain element of the quote, then both parties would need to sign and agree.
So, how do you make your quote legally binding?
To ensure your quote is legally binding it must fulfil the 5 requirements of a contract. It must include an exchange of promises; it must be clearly accepted by someone with the capacity to do so; there must be evidence of intention and it shouldn’t break any laws.
What does this look like in practice?
Consideration is taken care of just by creating and sending the quote.
The consideration essentially amounts to an offer. A quote is an offer to provide products and/or services, so just by providing the quote, consideration is covered.
Next, we have acceptance. Simply getting the customer to sign your quote may not be enough. Although that indicates acceptance it needs to be clear what they’re accepting.
This leads us on to intention. You need to have clear proof that the customer knew what they were signing and that they intended to make a contractual agreement.
This is where your terms and conditions come in.
Your quote should come attached with terms and conditions, including a clear stipulation that the document being accepted will enter both parties into a contract.
That just leaves capacity and legality.
These are on you.
Make sure your customer is not under 18 and if possible either get them to sign the document in person or send it to their private email (this places the burden of responsibility on them in case someone else signs the quote).
Finally, make sure that your quote doesn't contain anything illegal.
If you complete all these steps, you can be fairly confident that your quote will stand up as a legal document.
To make this process easy for you, consider using quoting software like Payaca. With a solution like this, you can clearly stipulate that your document is a quote and it makes it easy to professionally lay out your prices and attach T&Cs. Find out more at Payaca.com.
Once a customer has signed your quote, you cannot withdraw it without the customer's approval.
If the customer hasn’t yet signed and accepted the quote, then you can void or withdraw it as no binding agreement has been made. However, as soon as a customer has signed it, you are legally bound to honour that agreement, unless changes are agreed upon.
To create changes to a quote you would usually need to create a change proposal, clearly stipulating the changes that you want to make with a breakdown of how this affects prices.
The customer would then need to sign this change proposal thereby invalidating the original document and updating it to the new changes.
Given the legally binding nature of a properly prepared quote, it is very important that you price your work correctly and allow for any changes that might occur during the duration of the project.
You should be aware that it is possible for a proposal you didn’t consider to be legally binding to in fact be so, if it meets the necessary requirements.
In the same way that it is important to make it clear that your quote is a binding contract if that is your goal, it is also important to make it clear the other way if you do not wish your proposal to be considered legally binding.
Estimates, unlike quotes, are not legally binding as they are not considered to be legal contracts. Instead, an estimate acts as a rough approximation of a price and is not an official document.
However, it is important that you make sure that your estimates are clearly distinguishable from a quote.
If your estimate is considered to be a legally binding quote, then you could end up having to honour the prices given in that document.
Make sure your estimate is clearly labelled as an estimate and that your customer understands that this is a rough price approximation rather than a binding document. You can do this in the labelling of the estimate and any included notes or terms and conditions.
Quotes and estimates can be easy to mix up and many tradespeople use both documents interchangeably.
However as this article has sort to show, it is important that you understand the difference from a legal standpoint.
If you want to protect yourself and your customers, make sure you clearly distinguish between the two types of proposal and remove any confusion between you and the customer.
At the end of the day, a clear dialogue and a transparent process is the best way to proceed, ensuring you and your customers have a positive experience.
Here are some other related questions.
A quote only becomes a contract once it is signed and accepted by the person receiving the quote. The quote must also meet the requirements for a legal contract. These are:
All 5 requirements are explained in the article above.
Once a quote has been signed and accepted the quote cannot be changed without a formal agreement from both parties. This is usually done via a change proposal.
If the quote is not yet signed changes can still be made without legal implications.
If you have signed and accepted a quote then you are legally obliged to fulfil that payment, assuming the products or services outlined on the quote are delivered according to the information on said quote.
This means that even if you change your mind on whether you want the quoted work done, once you have signed you are committed to that work.
A verbal quote can be legally binding if there is sufficient evidence to prove the necessary consideration, intention and acceptance has taken place.
However, relying on a verbal quote is not recommended as it is far harder to prove or validate its existence.
A written document is always recommended where possible.
We offer a free trial of all our features, no credit card required. Setting up takes just 30 seconds.
Try for free
.png)
