We all enter into contracts, probably more often than we
realize. While a contract will commonly be in writing, you can also
enter into a binding contract verbally.
Further, with the rapid development of internet capabilities,
contracts can be entered simply by ticking an "I accept" box
electronically, such as when making a purchase from an online
So what makes a contract binding?
At its simplest, there are five essential
elements that need to be present in order for a contract to be
1. Offer. There must be an offer that is communicated and
open for acceptance without further negotiation. e.g I put a
classified listing on Trade Me to sell you my car for a Buy Now
price of $1000.
2. Acceptance. There must be a communication that the
offer is accepted. This can be in writing, oral, or inferred by
conduct. Using the Trade Me example, hitting the "Buy Now" link is
a communication of acceptance.
3. Consideration. There must be an exchange of promises
involving the giving of value in support of, or in return for, a
particular promise. e.g You pay me $1000 and in return I will give
you my car.
4. Certainty. The contract must be clear on the key
terms, such as who the parties are; the subject matter; and the
price. e.g When selling my car, I need to state in my classified
listing, what type of car I am selling.
5. Intention to Create Legal Relations. Often intention
will be presumed, especially where the other elements are all
present. However, this is not always the case. The basic test is
whether a reasonable person looking at the contract would conclude
that both parties intended that the contract be binding upon
The above five essential elements are not the be all and end all
of determining whether a contract is valid and binding as there are
various other aspects that might be relevant, e.g if the contract
was entered into by a child; if the contract is illegal; or if the
contract contained a clear misrepresentation of fact. However,
making sure any contract you enter has the five key elements above
is a really good place to start.
Also, it is important to remember that you might need to prove a
contract exists. Therefore, make sure you keep records of what you
sign, copies of emails, website confirmations and the like to
ensure you have a paper trail to show what was agreed, or what was