A contract is a legally binding document that is enforceable through the law. At its very core, a contract is a promise to perform a certain task. There is always an exchange of some sort in a contract. 

Usually, this task will be performed in exchange for something of value (the most common one being money). 

However, there are other elements of an agreement that make it a legally binding contract. Before you go ahead and sign any document, you want to know whether you’d be able to enforce it. 

What Makes A Contract Binding?

 In order for a document to qualify as a contract, it must contain the following elements: 

  • Offer and acceptance: A contract must contain a proposal and approval of it  
  • Consideration: There has to be a benefit for all parties involved. The most common form of consideration is money – for example, you give me food and I give you money for it. 
  • Capacity: For the signature to be valid, the signee must be of legal age and able to give full consent. 
  • Intention to be legally bound: All parties must freely and willingly agree to the legal enforceability of the contract 

In addition to these requirements, the contract cannot have any clauses that are illegal. These are also known as unfair contract terms

Unfair terms will benefit one party over the other and even cause another party detriment if it is enforced. If a contract contains these two factors, it will be declared void and cannot be enforced. 

Are Verbal Contracts Valid? 

Verbal contracts are valid, however, they are much harder to enforce as there is no tangible evidence of them. That said, it is not entirely out of the realm of possibility to enforce a verbal agreement. Specific performance can demonstrate an intent to be legally bound, thus allowing the evidence of a contract to be seen. 

Example
Violet is a wedding photographer. Henry meets Violet while she’s photographing his friend’s wedding and inquires about her services for his own wedding at the end of the night. They agree to a package deal Violet offers, discuss the kind of shots they would like, dates, time, venue and all other relevant details. 

A few days later, Henry sends Violet the deposit amount they discussed. Unfortunately, a few days before the wedding, Violet is in a terrible accident and cannot make the wedding. Henry is sympathetic and manages to find a last minute replacement. However, when Henry tries to get the deposit back, Violet’s business partner, Steven, claims he cannot return the deposit as they never had a contract in writing. Unable to get into contact with Violet, they take the issue to Fair Work Australia.

The likely outcome here would be in favour of Henry. Even in the absence of a written contract, a verbal agreement can be enforced. The payment of the deposit demonstrated their intent to be legally bound. Henry is able to get his deposit back. 

Regardless of whether a contract is verbal or non verbal, it needs to adhere to the guidelines of a standard contract. 

How Do I Sign A Contract? 

To sign a contract, there are a number of factors that need to be checked first. 

A person must be a legal adult in order to sign a contract by themselves. A minor is not considered to have the capacity to enter into contracts. The Minors (Property and Contracts) Act 1970 (NSW) defines a minor to be a person who is under the age of 18. 

Minors do enter into contracts at times,however, it needs to be noted they possess the ability to repudiate a contract with proper notice. 

There are a few things to note when it comes to minors signing contracts, so it’s worth reading more into the legal age to sign a contract before deciding to enforce it. 

Capacity

To sign a contract, the signee must also be in a sound mental state that allows them to fully understand what they are consenting to. A contract signed while heavily intoxicated, for example, cannot be considered valid as the signee did not possess the capacity to consent at the time (note that this might also depend on the particular situation).

In addition to this, a person who lives with a condition that  impacts their ability to fully comprehend their surroundings is unlikely to validly sign a contract for themselves. 

Example
Let’s say Jordan is in the later stages of dementia. His niece, Sarah, decides to move in with him to aid him. A few months into living with Jordan, Sarah convinces him to sign a new will that declares all his assets are to go to Sarah upon his demise. Jordan’s son, Michael, finds out about the new will and disputes it, claiming his father was not in a sound state of mind when signing it. 

In this case, Jordan has a valid point. Jordan’s deteriorating mental state would mean he did not have the capacity to fully comprehend the document he was signing. So, it would not be valid in this situation. 

Witness

A witness is needed when signing many types of contracts. In order for a person to qualify as a witness, they will need to meet certain requirements. These are usually: 

  • The witness has to be a legal adult (over the age of 18) 
  • They need to be present at the signing of the contract
  • They cannot be a party to the contract

Certain types of contracts can also have additional requirements for witnesses. For example, they may require a witness to have known the person for more than twelve months, write a character reference for the signee or to not be related to them. 

Date Signed

For the contract to be valid, it must also date the day you have signed the contract. A contract will always be enforceable from the date of signing unless otherwise stated. 

Australian Business Number (ABN) 

At times, a contract will require your Australian Business Number (ABN). This will be common in agreements for contractual work. For example, if you have agreed to commission a painting, the artist will likely need to add their ABN to the contract. 

What If I’m Signing As A Company?

A company is a legal entity on its own and therefore has the ability to enter into contracts. The signing of the contract will need to be done by someone who has been appointed the power to do so. Generally, this will be: 

  • One or two directors 
  • A company secretary who is also a director

It’s important to keep in mind that a Company Constitution will also determine who has the authority to enter into a contract on behalf of the company. For example, your constitution might allow employees to enter into contracts for the company, although it’s far more common to see a director or secretary completing this task. 

What Are Some Types Of Contracts?  

There are contracts for almost every commercial relationship. Businesses use contracts to protect themselves and ensure the efficient running of operations. Internal privacy policies, company documents, shareholders agreements, vendor contracts and standard form contracts are just some of the legally binding documents a business might use. 

It’s essentially a way of making things official with arrangements by tying those terms to potential legal consequences later down the track. 

How To Sign A Contract Electronically

E- signatures are not only valid, but they are also an increasingly preferred method. E-signatures eliminate the need for all parties to a contract to be physically present or take the risk of mailing confidential documents to one another. 

Instead, e-signatures allow convenience and security. A document is harder to tamper with when it is signed electronically. At Sprintlaw, we provide our members with unlimited use of our exclusive e-signature tool. 

Is It Valid To Initial A Document? 

Initialing a document is typically used prior to signing the formal agreement. During the negotiation and drafting stages, initialing can be used on certain pages of the document to demonstrate the individual has read and understood the contents. For example, an insurance agreement may use initialing on pages with the most important financial information. 

Generally speaking, initialing does not equate to formally signing the document. 

What Other Contract Services Might I Need?

In business, there are countless contracts and agreements you will need to use in order to run your businesses efficiently. At Sprintlaw, we offer the kinds of contract packages a business may need. 

Our legal team can draft a range of contracts and agreements, tailored exclusively to your businesses. Casual employment contracts, executive employment contracts and even Sub-Contractor Agreements Are available among many others. Aside from internal contracts, a business will also need agreements such as Non-Disclosure Agreements and business sale agreements

Key Takeaways

There’s a lot to consider when it comes to contracts. That is because they are one of the most varied aspects of law – there’s a multitude of different contracts and circumstances for contracts. An ever-evolving environment means constantly adapting to the changing needs and priorities.

For more information, you can download an information sheet on signing agreements from our legal tips page.

What’s Next? 

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

About Sprintlaw

Sprintlaw is a new type of law firm that operates completely online and on a fixed-fee basis. We’re on a mission to make quality legal services faster, simpler and more affordable for small business owners and entrepreneurs.

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