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Contracts are the lifeblood of business transactions. They help to bring parties together so they can complete an agreement. A contract outlines the rights and responsibilities of both parties and how the agreement can be varied or terminated. However, the main feature of a contract is its legal enforceability. This means that either party can apply to the court for compensation if the other party does not uphold their obligation or breach the contract term. However, to make sure that this does not happen, you must draft your contracts properly. This article will explain how drafting and forming a New Zealand business contract properly can prevent disputes.

What Is a Business Contract?

A business contract is an agreement that a business may have. This could be with:

  • customers;
  • suppliers;
  • distributors;
  • competitors; or
  • the government. 

A business contract will outline what you have to do under the contract and what you are entitled to. Like any contract, you cannot change it without the express permission of both parties. Indeed, the contract itself will outline the termination process.

For a business contract to be enforceable, it must have several elements. These are:

  • an unequivocal offer;
  • a valid acceptance;
  • sufficient consideration;
  • an intention to be binding from both parties; and
  • certainty in terms.

If one of these elements is not satisfied, the contract will not be legally binding. This is why you must draft your contracts well. 

Offer

Contractual Parties

The first step to drafting or forming any business contract is to know who the parties are. This could be a class of people or specific names to the contract. Ensure that if you use a class of people, the group is specific enough to avoid ambiguities. An example of a contract being negotiated for a class of people is a collective bargaining agreement.

Contractual Terms

The most important part of any contract is ensuring that you draft the terms of a contract correctly. This is because the primary source of contractual disputes is contractual clauses. 

During this process, you will negotiate with your contracting party. You do not want to include terms, but both parties must compromise to get the best result. You can negotiate some contracts through offers and counteroffers. This means you will send an offer to your contracting party, and they can either accept or send you a counteroffer for you to accept.

To limit the chance of a dispute, you should make sure that your terms are unambiguous. Some standard clauses that you should include in your contract are a:

  • termination clause
  • dispute resolution process; and
  • contract variation procedure.

Even though oral contracts can be legally binding, it is always best to draft a written contract. This is because there is less likely to be a dispute due to physical evidence of an agreement. 

Acceptance

Once you draft a contract, the other party must accept the contract. Acceptance must come in the form specified in the contract. Otherwise, it will not be valid. However, there is some discretion as to how you accept a contract. For example, if the contract says to post your acceptance, you end up couriering it, the courts will likely rule this acceptance as similar enough.

Acceptance must also be within the time frame that the contract specifies. However, suppose you are accepting via post. In that case, the postal acceptance rule dictates that acceptance has been completed once the contract has been posted, not when your contracting party receives the acceptance. 

Consideration

There also needs to be consideration from both parties. This means there must be a benefit or detriment that each party receives because of the contract. If only one party offers consideration, then the contract will be deemed unenforceable. 

Therefore, when you draft a contract, you must make sure the contract is not gratuitous i.e. not giving something for nothing.

Intention

There must also be an intention from both parties for the contract to be binding. Otherwise, the contract can be declared legally unenforceable.  

Key Takeaways 

Business contracts are an essential tool to make sure that agreements are legally enforceable. For this to happen, the contract needs to be meet several elements. You must also ensure you are drafting and forming your business contract correctly to avoid disputes down the road. For this to happen, the parties must be clearly defined, and the contractual terms should be unambiguous. There must also be valid acceptance for the contract to be formed in a legally enforceable manner. Finally, consideration is crucial as both parties must receive or give something of value.

If you need any legal assistance with business contracts, LegalVision’s experienced contract lawyers can help. Call us today on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Does a business contract have to be drafted in a specific way?

No, all contracts must have the same elements to be binding. However, the language of a business contract will be geared towards the outcome it wishes to achieve.

How will the courts deal with ambiguous terms?

If a term is ambiguous, the court may void it as it may be unclear who benefits from it.

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