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Contracts are the bread and butter of any commercial relationship and are used to create legal relations between parties. In addition, they often underpin commercial transactions. A contract will contain the rights and responsibilities of each party. It will be legally binding as long as it contains the elements of an enforceable contract. A contentious issue that can surround contracts is the date that the effects of the contract come into play. Many people believe that they can backdate contracts so that the provisions are enforceable before the contractual date. However, this may not be the case. This article will explain whether you can backdate a contract in New Zealand.

What is Backdating?

Backdating is a process that makes contracts enforceable before the date that it came into effect. It is generally illegal to backdate.

However, there may be circumstances where it is useful and legal to backdate a document. 

When is a Contract Usually Enforceable?

A contract is enforceable if it contains all the elements of a binding contract. For instance, this means that both parties must intend for the contract to be enforceable when they enter into it. In addition, a contract must also have consideration from both parties. This means that both parties must either get a benefit or suffer a detriment due to the contract’s effects. A contract that does not contain consideration is known as a gratuitous promise and is not enforceable.

Another element that needs to be met for a contract to be enforceable is that it must have terms that are certain. This means the terms of a contract cannot be ambiguous. If a term is ambiguous, then a court may rule that it is unenforceable. In addition, if an unambiguous term is an essential part of the contract, the court could also nullify it entirely.

Can a Contract Be Backdated?

You can vary a contract as long as both parties consent to the variation. Therefore, backdating contracts may be legal as long as both parties agree and there are no third-party beneficiaries to the contract. At the moment, the law is unclear in New Zealand around backdating. However, a recent case has ruled that backdating is legal as long as the parties’ conduct indicates that the backdate has taken place. 

For example, if two parties backdate a loan contract to include earlier money paid, the courts are likely to affirm that the earlier money is part of the loan if the parties treat it as such. Determining the parties’ conduct will look to how they have spent the money and whether there was an effort to pay interest or the principal. However, a court will not enforce a backdated agreement if one party has not agreed to the variation.

Should I Backdate a Contract?

The best advice is never to backdate a contract as the legal issue still remains up in the air.

A court will usually try to construe a contract in line with the parties’ commercial intentions. However, there may be situations where a court may decide to enforce the contract from the original date on the contract. This can be disastrous for the party that has relied on the earlier date. Unfortunately, it is hard to determine which way a judge will go until the case appears before the court.

Key Takeaways

The main way that commercial partners can build trust with each other is through contracts. Contracts are legally enforceable, so the court can uphold the agreement if one party refuses to uphold their obligations. Sometimes, parties to a contract may backdate it to be in effect from before they signed the contract. Backdating a contract is usually not recommended as a court may not find the contract enforceable from that date. However, a court may enforce this contract as long as both parties consent to the variation, and there are no third-party beneficiaries to the contract. A court will also uphold the contract if the parties’ conduct was consistent with that backdate. For legal assistance with managing your contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Is it recommended that I backdate my contract?

No, it is not recommended that you backdate your contract as it is unclear whether a court will enforce this backdate if you end up in a dispute with your contracting party.

How do I make sure that my backdated contract is enforceable?

You should make sure that all parties to the contract consent to the variation and their conduct is consistent with the backdated contract. 

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