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Most people have dealt with a contract in one form or the other. It may be in the form of an employment contract, confidentiality agreement, or an agreement for a property transaction. In any case, they play an important role in the smooth running of commercial dealings. This is because parties to a legally binding contract must follow what it says. However, if a contract is not legally binding, the parties to that contract are under no legal obligation to follow the terms in it. Many people have an unfinished contract and are wondering whether they can enforce it. This article will explain whether a draft or unfinished contract is legally binding in New Zealand.

Elements of an Enforceable Contract

There are several elements that must be satisfied before a contract can be binding. These are best asked in question form.

Question Explanation
Is there a valid offer? A contract must have a valid offer from one party to another. You must make this offer to the party you wish to contract with. The offer must also contain the relevant terms that you are asking them to contract on.
Was there sufficient acceptance? The person receiving the offer must then send back an acceptance if they are willing to enter into a contract. They must send the acceptance in the method stipulated by the offer. If it was sent in a different way, then the offer is not valid. They must also send the acceptance before the offer expires.
Was consideration given?

Both parties must receive a benefit from the contract. If no benefit is received, the contract is not valid. This is because an exchange has not occurred.

The person who makes the offer must also ensure consideration’s value stipulated is sufficient for the exchange.

Did the parties intend for the contract to be binding? The parties must also intend for the contract to be binding. If either party genuinely believes that they are not entering into a binding contract, then the contract will not be enforceable. This can often become controversial and the source of many disputes.
Were the terms of the contract certain and unambiguous? The terms specified in the contract cannot cause confusion. Additionally, parties should not be able to interpret them in more than one way. This ensures both parties are clear as to the effect of the contract. Judges can sometimes drop clauses that are ambiguous. 

Is a Draft or Incomplete Contract Binding?

If a draft or incomplete contract satisfies the above elements, it is binding. It is irrelevant whether the contract is binding or incomplete. However, if you wish to add any other term to the contract, you must go through the process stated above.

Implied Consent

Sometimes parties can give implied consent to a contract. This means that the conduct of the party indicates that the contract is binding. This is often the case when there are caveats in contracts.

For example, a contract may indicate that it is binding subject to a specific requirement. If this is the case, once a party meets that requirement, they will implicitly consent for the contract to be binding.

This will be especially true if there has not been anything to suggest that the contracting party did not intend for the contract to be binding. 

Key Takeaways

All commercial dealings involve contracts as they are legally binding. This means that the contract can be enforced if one party is not upholding their obligations under it. However, a contract is only legally enforceable if it meets the elements of a binding contract. These are:

  • offer;
  • acceptance;
  • consideration;
  • intention to bind; and
  • certainty of terms.

Incomplete or draft contracts can be legally binding as long as they have met the requirements of an enforceable contract. Parties can also give implied consent to a contract if their conduct suggests that they have agreed to the terms of the contract. For legal assistance with managing your contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

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