What makes a contract legally binding in NSW?
Contracts are the lifeblood of business. But not every agreement is enforceable in law. In New South Wales, certain elements must be present before a contract is considered legally binding.
Here’s a breakdown of what makes a contract enforceable under NSW law.
Offer and acceptance
Every contract begins with an offer — a clear statement of terms by one party. The other party must accept those terms without significant changes. If the response alters the terms, it is a counter-offer, not an acceptance.
Intention to create legal relations
The parties must intend the agreement to be legally binding. In commercial settings, this intention is usually assumed. In social or family arrangements, the presumption may be the opposite.
Consideration
Consideration is the “price” paid for the promise. It does not have to be money — it could be goods, services, or even refraining from doing something. A promise without consideration is generally unenforceable.
Capacity to contract
The parties must have the legal capacity to enter a contract. This means they must be of legal age and sound mind. Companies must also act within their legal powers.
Certainty of terms
The agreement must be sufficiently certain. Vague promises such as “a fair price” or “reasonable quality” may not be enforceable unless they can be objectively determined.
Compliance with formalities
Some contracts must be in writing to be enforceable. Examples include:
- Contracts for the sale of land.
- Consumer credit contracts.
- Certain guarantees.
Other agreements may be binding even if made orally, but written evidence is always safer.
Absence of vitiating factors
Even if the above elements are met, a contract may not be enforceable if it was formed under:
- Duress.
- Misrepresentation.
- Undue influence.
- Mistake.
- Unconscionable conduct.
Courts in NSW can set aside contracts where these factors are present.
Final thoughts
A legally binding contract in NSW requires more than just a handshake. Ensuring the right elements are in place helps protect your rights and reduces the risk of disputes.
Call 1800 000 566 to discuss your contract matter – we help draft them, interpret them, and enforce them. You can also book a free consultation using our online calendar, or fill in the form below.