Rowan is the Marketing Coordinator at Sprintlaw. She is studying law and psychology with a background in insurtech and brand experience, and now helps Sprintlaw help small businesses
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Slapping the label of ‘legal’ on any old document does not constitute legally valid material. For a document to be considered legal, such as a contract, it must meet particular criteria. As detailed below, the law requires a set standard to consider a signed document legal.
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. A contract will usually 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 in order for the contract to be valid.
- Intention - all parties in the contract must be aware and willing to be legally bound together. You cannot mislead or deceive someone into signing a contract with you.
- Consideration - there must be a benefit to the contract for both parties. A good, profit or service received can all be taken as consideration.
- Capacity - the people entering into the contract must have the mental capacity to fully understand what they are agreeing to. For example, children under 18 cannot enter into a contract on their own, and neither can someone with a mental impairment that disrupts their ability to make sound choices for themselves.
| Example When putting together an Employment Contract, an employer will need to ensure that all of these factors are being met to create a legally valid document. For instance, the following elements will need to be present: - Offer of employment - Employee’s capacity to accept the offer and enter into the agreement - Salary (consideration) |
Ways You Can ‘Accept’ A Contract
Most formal agreements are accepted by a signature. The traditional way is putting ink to paper and sealing the deal. However, living in the digital era means many systems have become available online and contracts are no exception.
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, which we've according to our clients' needs. There's no disruption to your workflow and you can keep all your key legal documents in the 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 to which Dave replies in the affirmative. Dan then replies, ‘Great, I’ll take the floral arrangement and be there to pick it up at 7.30am for $150 on Wednesday’. Dan agrees to this and sets out to arrange his order. In this scenario, both parties have agreed to accept a contract, albeit in an informal manner. This is still considered a valid and legal contract which is enforceable. If one of these individuals does not uphold their end of the agreement, they would be subject to the same repercussions as a formally signed agreement. |
What About Verbal Agreements?
Verbal agreements are also legally binding. Agreeing to a contract verbally is still valid, despite the absence of writing. Much like written agreements, a verbal contract must contain the same elements of intention, capacity, offer/acceptance and consideration.
However, proving the existence and the terms of a verbal agreement can be difficult. Even if you have a verbal promise, you should always try to get it in writing as a protective measure.
When Is A Contract Void Or Unenforceable?
A contract can be void and unenforceable for a number of reasons. This can happen where there is something illegal about what’s inside the contract or how the contract came into existence.
The following is a list of circumstances under which a contract may be considered unenforceable:
- When the contract is based on something illegal or there are clauses within the contract that are not compliant with the law.
- One or more of the parties signing the contract did not have the capacity to sign. This includes people under the age of 18 or individuals living with a mental impairment
- The contract was signed under duress, meaning the person signing it was forced into it via some kind of external pressure.
| Example Let’s say Ali has a cognitive impairment and their parents recently left them a large estate and a considerable sum of money, ensuring they are comfortable and taken care of. Ali’s cousin is well aware of their considerable wealth and drafts a contract where all of Ali’s assets are transferred to them. They then pressure Ali into signing the contract by exerting physical force. A contract of this measure would be illegal on multiple counts. First, Ali did not possess the capacity to sign the legal document with no one else present such as a guardian. They were then threatened into signing it, so it was signed under duress. Finally, it is a contract that has no consideration or benefit for Ali, so it is likely to be illegal. In such a case, the law would not uphold the contract. |
It is also worth noting that the court will decide whether the contract is unenforceable based on the contract itself in light of the circumstances. In other words, the decision is made on a case-by-case basis.
Can A Legal Document Be Terminated?
Yes, once signing a legal document, you are not bound to it forever. Many contracts will have termination clauses (you can also end a contract with a Deed Of Termination).
For example, employment contracts will usually have a notice period of four weeks for resignation. In this case, an employee can end their contract of employment assuming they comply with the notice period set out in the document.
You can also end a contract by breaching one of its clauses. Another way is termination by frustration, which occurs when an external event outside of the control of the parties occurs. This event makes carrying out the terms of the contract difficult or impossible, therefore constituting a frustration.
These can come in the form of force majeure clauses, so it’s a good idea to keep an eye out for these in your contracts.
Key Takeaways
There are a number of factors which need to be considered when attempting to draft a legal document. All legal documents must contain the basic elements that are listed above and adhere to any other legislation that may be specific to the type of contract that is being made, such as employment law for employment contracts.
So, it’s always great to get 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 team@sprintlaw.co.nz for a free, no-obligations chat.
Rowan GardoceMarketing Coordinator
