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People enter into contracts every day. However, many people are unaware of what a contract actually is and when it is legally binding. A contract is a document that governs the relationship between two or more parties. You will usually form the contract to achieve an objective. It is only legally binding when it meets all the legal requirements of a binding contract. However, there are situations where a contract meets all the elements of a binding agreement but is not legally enforceable in court. Furthermore, some people in certain situations are incapable of signing a legal contract. This article will outline who can sign a legal contract and in what situations a contract is defeasible.

What Are the Elements of a Legally Binding Contract?

To understand the situations where a contract is unenforceable, it is important to note the requirements for a binding contract. These are:

  • a clear and unequivocal offer;
  • valid acceptance;
  • sufficient consideration;
  • an intention to be binding; and
  • certainty in the terms.

You must satisfy all five elements for the court to consider a contract to be valid. However, even if you satisfy all five elements, the courts can still find the contract unenforceable in certain situations.

Situations Where a Contract Is Unenforceable

Contract Signed by Minor

A contract signed by someone under 18 years of age is not enforceable in New Zealand. This means that both parties are not obliged to follow the contract terms. However, it is still common practice for many to form contracts with minors, especially young athletes. This is to symbolise to other competitors that a relationship has been formed with the minor even if the contract is not legally binding.

The exception to this rule is employment contracts where a person can be contractually bound from the age of 16. There are, therefore, situations where a court may enforce a contract with a minor. This may be if the court deems the contract to be fair and reasonable or a parent co-signed or signed on behalf of the minor.

The Party Is of Unsound Mind

Another situation where a signed contract is not enforceable is where the party is of unsound mind. A person of unsound mind is someone who is not mentally capable of intending to enter into a binding agreement. It is vital that if you enter an agreement with someone, they are mentally sound. Some elderly people may also be classed in this category if they do not have sufficient cognitive capacity. However, being elderly in and of itself is not determinative of mental capacity. 

Courts will generally look at certain factors to determine if someone is of sound mind. These are whether the person:

  • understands the nature of the document that they are signing;
  • is free of any condition that causes them to suffer from a loss of judgment or knowledge; and
  • knows and approves of the contents of the document.

If the court cannot satisfy all three of these elements, the court will not consider the person to be of sound mind and will cancel the contract. 

Duress

Another situation where a person is not legally bound to a contract is where they signed the contract under duress. This means someone either forced them into the contract, or they had no other choice but to sign the contract. Usually, this is when someone threatens the party or applies serious pressure.

Undue Influence

If someone is influencing your decisions illegally, then any contract you sign will not be legally binding. This can mean that your contracting party takes advantage of you because you may be in a vulnerable position. Alternatively, they may take advantage of someone close to you to get you to sign the contract. 

Key Takeaways

Contracts are crucial in the commercial industry for transactions and agreements to be processed. However, the court can consider a contract unenforceable even if it satisfies all the requirements. For example, when a person is a minor or does not have the mental capacity to enter into a contract. Alternatively, where someone is under duress or unduly influenced by the contracting party, they cannot enter into a binding contract. This is because they are not willingly out of their own judgment entering into a contract. 

If you need any legal assistance with author publishing 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

Do I need all the elements to be satisfied for a contract to be binding?

Yes, they must all be satisfied. However, just because they are satisfied, this does not mean the contract is binding. 

How is duress found?

A court usually finds duress when there is a significant power imbalance between the parties and one party needs the contract more. The court can also find threats or pressure to be duress.

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