What Makes A Signed Document Legally Binding?

Slapping the label of ‘legal’ on any old document does not make it legally valid in New Zealand. For a document to be considered legal, such as a contract, it must meet specific criteria under New Zealand law. The standards required for a signed document to be legal are detailed below.

What Is A Contract?

A contract is a signed legal document which states the legal promise of two or more parties to be bound together in exchange for something. In New Zealand, a contract will typically contain the following elements:

• Offer and acceptance – a contract must contain a proposal of an offer of some sort. There must be a clear acceptance of that offer by the other party for the contract to be valid.
• Intention – all parties in the contract must intend to create a legal relationship and be willing to be legally bound together. Misleading or deceiving someone into signing a contract is prohibited.
• Consideration – there must be a benefit to the contract for both parties. This could be a good, profit, or service received.
• Capacity – the individuals entering into the contract must have the legal capacity to understand and agree to the contract terms. For example, minors (typically under 18) and those who are mentally incapacitated may lack the capacity to enter into contracts.

Example When drafting an Employment Contract in New Zealand, an employer must ensure that all these elements are present to create a legally valid document. For instance, the contract should include: – An offer of employment – The employee’s capacity to accept the offer and enter into the agreement – Salary or wages (consideration)

Ways You Can ‘Accept’ A Contract

Most formal agreements are accepted by a signature. The traditional method is putting ink to paper. However, in the digital age, many systems, including contracts, have moved online.

At Sprintlaw, we offer an E-Signature tool where clients can sign and send legal documents electronically. You can manage your signatures through our custom-built e-signature platform, designed to meet our clients’ needs without disrupting your workflow. All your key legal documents can be kept in one place.

You can access it as part of your Sprintlaw Membership.

Example Dave is a florist, and Dan sends him a text asking about a floral arrangement. Dave replies affirmatively. Dan then texts, ‘Great, I’ll take the floral arrangement and be there to pick it up at 7.30am for $150 on Wednesday’. Dave agrees to this and prepares the order. In this scenario, both parties have informally agreed to a contract, which is still considered a valid and enforceable legal contract in New Zealand. If one party fails to uphold their end of the agreement, they could face legal consequences similar to those of a formally signed agreement.

What About Verbal Agreements?

Verbal agreements are also legally binding in New Zealand. A verbal contract must contain the same elements of intention, capacity, offer/acceptance, and consideration to be valid.

However, proving the existence and terms of a verbal agreement can be challenging. It is always advisable to get any agreement in writing as a protective measure.

When Is A Contract Void Or Unenforceable?

A contract can be void and unenforceable for several reasons, such as if it involves something illegal or if the contract was not formed correctly under New Zealand law.

The following are circumstances under which a contract may be considered unenforceable in New Zealand:

• When the contract is based on illegal activities or contains clauses that are not compliant with New Zealand law.
• If one or more parties signing the contract lacked the capacity to do so, such as minors or individuals with a mental impairment.
• If the contract was signed under duress, meaning the person was coerced into it through external pressure.

Example Imagine Ali has a cognitive impairment and has recently inherited a large estate and money. Ali’s cousin, aware of this wealth, drafts a contract transferring all of Ali’s assets to them. They then coerce Ali into signing the contract through physical force. This contract would be illegal on multiple counts: Ali lacked the capacity to sign without a guardian, they were coerced, and there was no consideration for Ali. Under New Zealand law, such a contract would not be upheld.

The court will decide whether a contract is unenforceable based on the contract itself and the surrounding circumstances, on a case-by-case basis.

Can A Legal Document Be Terminated?

Yes, in New Zealand, you are not indefinitely bound to a legal document after signing. Many contracts include termination clauses, or you can end a contract with a Deed Of Termination.

For instance, employment contracts typically have a notice period for resignation. An employee can terminate their employment contract by complying with the notice period specified in the agreement.

Contracts can also be terminated by breaching a clause or by frustration, which occurs when an unforeseen event outside the control of the parties makes fulfilling the contract’s terms difficult or impossible. These events may be covered by force majeure clauses.

Key Takeaways

When drafting a legal document in New Zealand, it is essential to include the basic elements listed above and adhere to any other legislation specific to the type of contract being made, such as employment law for employment contracts.

It is always beneficial to seek legal assistance when drafting your agreements.

If you would like a consultation on your options going forward, you can reach us at 0800 002 184 or [email protected] for a free, no-obligations chat.

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