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If you are to have a successful agreement with somebody, then you must sign a contract. Generally, this means that parties cannot dispute their rights and obligations after they sign the contract. There are several ways in which parties can form a contract. The best way is to have a written contract, as it clarifies what the parties are agreeing to. However, you can also form a contract orally. Once parties write and sign a contract, they cannot alter it unless all parties write and sign the alteration. However, there are certain circumstances where parties may vary a contract orally. This article will explain what those situations are and how they might affect you.

When Is a Contract Binding?

For a contract to be binding, it needs to have several elements. These are:

Element

Description

Genuine Offer

An expression to contract with another party on specific terms.

Valid Acceptance

Approval of the terms of that agreement. This approval must be in line with the approval stated in the contract.

Sufficient Consideration

Something of value that both parties express, such as a benefit or an omission to do something. It can also be a detriment, such as a payment.

The intention from both parties

Both parties must intend for the contract to be binding.

Certainty in terms

The terms must be specific, and there cannot be any ambiguity in the contract.

How Can Parties Form a Contract?

There are generally two ways in which parties can form a contract. These are:

  • written; and 
  • oral. 

What Is a Contractual Modification?

A contractual modification is when parties alter a contract. This can mean the terms are changed or certain terms are removed. Contractual modifications are allowed. However, all the parties to a contract must agree to it. 

When Can Parties Vary a Written Contract Orally?

If there is nothing in the contract that says that oral modifications are not allowed, you can orally vary the contract. This is on the basis that the modification has all the elements of a binding contract.

However, most contracts will have a ‘no oral modifications (NOM) clause’. In New Zealand, a NOM clause is generally enforceable. However, there are certain situations where a NOM clause will not be enforceable. This is because a modification is binding as long as it meets the elements of a contract. A party who is arguing that an oral modification is valid will state. However, the contentious element that must be met is whether the parties intended to be bound by the oral modification. If the parties intended to be bound by the oral modification, then the NOM clause is redundant as the elements of a binding modification have been met.

The main point of the NOM clause is to make sure that claims of a variation are not binding if one party did not intend for it to be. The party wanting the modification to be binding has a more substantial burden of proving that the other party had the full intention of altering the contract. 

To avoid a dispute with your contracting party, it is always a good idea to write down any variations to the contract and have it signed by all parties. This means that there are not contentious issues in terms of the agreement. Even though you have to prove that your contracting party intended to be bound by the contract, a written modification means it is much easier to prove in court. It is also a good idea to have a thorough process in your contract that outlines how you or your contracting party can make a modification. This avoids any issues with this process.

Key Takeaways

Contracts are an essential document that you need to have when dealing with other parties. This is because they provide remedies in the case of a breach of an agreement. Contracts have to have some elements for them to be binding. Parties can also modify the contract as long as there is consent. However, some contracts may contain NOM clauses. These are generally enforceable unless the parties intend the alter the contract. Then the NOM clause is revoked, and parties can orally modify the contract. The law around NOM clauses has changed over the years, but the courts are now happy to set a high threshold for them to overturn a NOM clause. 

If you need any legal assistance with commercial contracts, contact LegalVision’s contract lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Are there any ways other than verbal and written that parties can form a contract?

Parties can form a contract electronically as well as through the other prescribed methods. As long as the elements are met, the contract will be binding.

What is the point of a NOM clause if it can be revoked?

It is a high threshold for NOM clauses to be revoked, and both parties have to intend to revoke.  

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