Contracts are the backbone of any business deal or transaction. A contract governs the relationship between parties and is legally enforceable. However, most people enter into contracts that are unenforceable. Unenforceable contracts do not hold any value, and you should avoid them. This article will explain what enforceable means in a New Zealand commercial contract and how to make sure a contract is enforceable.
What Does Enforceable Mean?
In legal jargon, enforceable means a contract can be upheld in a court of law. That is, if either party does not uphold their obligations under the contract, the other party can ask a court to force that party to complete them. A court also has the power to award damages to one party. This means the party that breached the contract must pay the other party for any loss incurred due to the breach. A contract forms through the ‘meeting of minds’ of two parties.
When is a Contract Enforceable?
A contract is enforceable when it contains all the elements of a binding contract. These are when there is
- clear offer;
- unequivocal acceptance;
- sufficient consideration;
- intent to form legal relations; and
- certainty in terms.
For a contract to be binding, it must contain all of the above elements.
Continue reading this article below the formClear Offer
A binding contract must first start with one party clearly offering to contract on certain terms with another party. This may be through sending an email or a letter. This can also occur in person. It must be clear that whatever is being corresponded is an offer.
Unequivocal Acceptance
The party receiving the offer must then unequivocally accept it. Unequivocal acceptance means that there is no condition that the offer is accepted. If there is a condition, this is a counteroffer, and the party receiving this must accept it. Acceptance must occur in the form that the offer states. This also means the offer must be accepted in the timeframe specified. Any deviation from this could result in the contract not being accepted.
Sufficient Consideration
Another element of a binding contract is that there must be sufficient consideration between the parties. Consideration is what each party receives under the contract. For instance, one party receives payment, and the other party receives services.
It is unlikely that the value of the consideration will affect its enforceability.
Intent to Form Legal Relations
A further element to consider is to make sure that the contract is intended to be binding. This means that both parties must know that the contract is binding. If one party believes that the contract was not enforceable when it was formed, then it is not likely to be binding.
This also means that minors are likely unable to enter into a legally binding contract. Additionally, people who lack proper mental capacity may also be unable to enter into a binding contract as they will not have the intention to form legal relations.
To protect your business, ensure supplier contracts meet your business’ needs. Our free Commercial Contracts Checklist will help.
Certainty in Terms
Finally, an enforceable contract must also contain certainty in terms. This means that contractual terms cannot be ambiguous. Any ambiguous term may be considered unenforceable. If an essential term of the contract is uncertain, then the courts will decide to make that term, or the whole contract, unenforceable.
The reason certainty in terms is essential is to avoid confusion between the parties regarding the contract terms. Ambiguous terms are likely to create disputes between the parties. Contracts should avoid vague terms such as ‘reasonable’ as they are subjective. Using objective terms in contracts means less likelihood of ambiguity or uncertainty.
Key Takeaways
Contracts are an important tool you should use in your business dealings. Their strength comes from their enforceability. This means that if either party breaches the contract, the other party can ask the court to enforce its terms. The court can also award damages for any loss incurred due to the contractual breach. For a contract to be enforceable, it must contain certain elements. These elements must be met for the contract to be legally binding. Any unsatisfactory element will render the contract unenforceable.
If you need help ensuring your contracts are enforceable, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
A counteroffer is when someone receives an offer, alters its terms, and sends it back to the original offeror.
No, a contract is only enforceable if it meets the elements of a binding contract and the contracting parties are not minors or lack mental capacity.
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