Contract Law

Entering into business contracts – are you getting the basics right?

A good understanding of contract law is essential for every business and organisation wanting to deal effectively and safely with others. In simple terms, a contract is an agreement that the parties intend to be enforceable by law. But there are many potential pitfalls. Is the contract you are considering entering into enforceable? How do you resolve misunderstandings? Are there any hidden traps?

Once you have entered into a contract, you have an obligation to do what you have agreed to do. If you don’t, you or the organisation you work for can be sued for non-performance of your obligations.

Clearly set out key terms

The key terms of a contract offer must be clearly set out so that once a person accepts the offer, there is no requirement for further negotiation. Key terms include:

  • A description of the goods or services
  • Price
  • Terms of payment, and
  • Time of supply

A court will not enforce an “agreement to agree”. However, parties can agree that certain matters relating to the contract are to be determined at a future date, provided there is some “formula or machinery” that makes those matters certain.

 

Advertisements not usually contract offers

Advertisements for goods and services for sale are not usually contract offers. However, goods advertised for sale on Trade Me with a "buy now" price would most likely be an offer.

Advertisers may make their intention clear by using such words as:

  • Subject to availability
  • Terms and conditions apply

Where goods and services are being promoted on a website, terms and conditions should be readily available on the website.

Get the practical essentials of contract law in NZ

Contract Law Made Easy with consultant editor Christina Bryant, a partner at Hesketh Henry, sets out the practical essentials of contract law in New Zealand. Basic contract law principles are summarised in the guide including:

  • Contract negotiations
  • Entering into contracts
  • Contract terms
  • Perfoming contracts
  • Terminating contracts
  • Consequences of breach

Available on subscription, the guide provides:

  • Essential elements of contract law for businesses
  • Key provisions of the legislation
  • Case studies and examples
  • FAQs
  • Common risks
  • Tips for avoiding common traps

 

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Understanding counter-offers

FAQ. What happens if I send an email accepting most, but not all, of the terms proposed by the person making an offer?

You are not accepting the offer completely, so there is no contract. You are making a counter-offer. If that is accepted by the other party completely and unconditionally, a contract is formed. A counter-offer terminates the original offer, so you can't later change your mind and accept the original offer.

Be wary of misleading statements

If you induce someone to enter into a contract by making a false or misleading statement, that person may be entitled to cancel the contract and may be awarded damages.

Avoid unfair contract terms

Businesses must avoid unfair contract terms in standard form consumer contracts. For example, early termination fees may be unfair if a business is recovering more than it needs to recover to protect its legitimate business interests. The fairness of early termination fees will depend on the size of the fee, the way it is calculated and the business model of the business concerned. What businesses may not do is charge a fee so high it amounts to a penalty for cancelling early. 

How can you reduce your risk?

With Dacreed's online compliance training you can train managers and staff on their compliance obligations to help protect you and your business from prosecution. Once complete, the training also enables you to demonstrate a lower risk profile to insurers. This results in lower premiums – saving you and your business money. 

 

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Read contracts carefully

If you make a mistake when entering a contract the law may provide relief in certain circumstances. But not if you misread the contract – the law does not provide relief for mistakes of interpretation.

Contract law up-to-date and accessible

The Contract and Commercial Law Act 2017 consolidates a number of key commercial statutes including:

  • Contracts (Privity) Act 1982
  • Contractual Mistakes Act 1977
  • Contractual Remedies Act 1979
  • Electronic Transactions Act 2002
  • Frustrated Contracts Act 1944
  • Illegal Contracts Act 1970
  • Minors' Contracts Act 1969
  • Sale of Goods Act 1908

These previously distinct laws can now be found in a single piece of legislation in an up-to-date and accessible form.

Train your staff on contract law basics

Make sure your employees and managers are aware of their obligations and help you grow and maintain a safe workplace culture with Dacreed's online compliance training.

 

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