Whenever you buy a product or service, you are entering into a contract.

Contracts can be verbal, in writing or electronic

You enter into a contract every time you buy, hire or lease products or services – or click on an ‘I agree’ button online.  A binding contract can be verbal, in writing or electronic. Contract laws apply as well as consumer law. Contract laws are rules that have been decided by the courts, and are also called common law rules.

Making a contract involves three basic steps

There must be:

  • an offer you make as the buyer: ‘I'd like to buy this jersey’
  • the seller accepts the offer: ‘That'll be $59.95.’
  • you both exchange something of value, called ‘consideration’. The seller agrees to sell the jersey. The buyer agrees to pay the price of the jersey.

So the contract is formed at the time when acceptance of your offer is communicated to the seller. You must also both intend to make a legally binding contract.

Agreeing to or signing a contract

If you sign a written contract, you are usually bound by all of its terms even if you did not read or understand them. You are in breach of contract if you do not comply with its terms. You are also in breach if you change your mind and decide not to complete the contract. Some contracts must be in writing to be valid: buying a house, employment contracts, and many others.

There are also various types of contracts (standard form contracts) that don’t require your signature, eg car-park tickets or a dry-cleaning dockets that have clauses printed on the back.

Before you agree to or sign a contract

Before you sign a written contract, take time to understand what you are agreeing to. Read all the terms of the contract, including the fine print. You can minimise your risk in various ways:

  • Ask questions and get advice if there is anything you are unsure about or don’t understand.
  • Negotiate or shop around if the contract doesn’t suit your needs.
  • Ask the seller to explain the contract, verbal promises or claims to be attached in writing to the contract.
  • Don’t be pressured into signing anything on the spot.
  • Never sign a blank contract or allow details to be filled out later by a salesperson.
  • Check that any figures or other information inserted into the contract are correct.
  • Get a copy of any contract you sign.

Know your rights

You have various rights if there is a problem with any products or services:

  • statutory rights under consumer laws such as the Consumer Guarantees Act, the Fair Trading Act, and the Credit Contracts and Consumer Finance Act 2003
  • contractual rights under your contract with the trader or seller
  • common law rules of contract made by the courts.

Consumers with disabilities may be more at risk of not knowing their rights, if these have not been fully explained to them before signing a contract.

Most consumer contracts do not have to be in writing to be legally binding. However, some consumer contracts must be in writing:

  • consumer credit contracts
  • door-to-door and layby sales contracts
  • extended warranty contracts.

Electronic contracts have some special rules about formation, but are otherwise legally binding contracts. Read E-signatures and electronic contracts to find out more.

Generally only the parties to the contract have any contractual rights under the contract.
A breach of contract is where one of the parties to the contract breaks or does not complete the terms or conditions of the contract.

You may be entitled to compensation if you have suffered financial loss as a result of a breach. Or you may be able to cancel the contract and get a full refund. Some contracts allow for cancellation, and some Acts provide special rules about cancellation for certain contracts such as layby sales.

See also:

When a contract is legally enforceable

A contract will be legally enforceable if these conditions are met:

  • you both intended to make the contract and agree about what is in the contract
  • the contract is legal: otherwise it is not enforceable under the Contract and Commercial Law Act
  • you are legally capable, also called ‘capacity’. People who are legally not capable of making contracts are:
    • minors – people aged under the age of 18 unless they’re married, or unless the other party to the contract can show the contract is fair and reasonable
    • people of unsound mind, including intoxicated people
    • people with property or personal orders under the Protection of Personal and Property Rights Act 1988 – find out more on the Ministry of Justice website(external link) 
  • there was no duress, undue influence or unconscionable conduct.

Duress: If serious threats or pressure are used to force someone to accept a contract, it may not be enforceable.

Undue influence: If someone gets an unfair or improper advantage by abusing their power over another more vulnerable party, eg that person is young and impressionable, elderly, has some form of physical or mental incapacity, or is in a close relationship of confidence and trust.

Unconscionable bargains: If someone has a special disadvantage (such as sickness, age, physical or mental incapacity, illiteracy, intoxication), which the other party knowingly exploits, the court can cancel the contract.

The legal test of what is fair and reasonable for minors includes:

  • the circumstances of how the contract was made
  • the type of contract it is, eg a loan contract versus buying clothes
  • the nature and value of the property, eg an expensive car versus a toaster
  • the age and means (if any) of the minor
  • all other relevant circumstances.

Parents are not liable for their children’s contracts or debts unless they agreed in writing to act as a guarantor.

If things go wrong

You have different options if you have a problem with a contract, depending on the terms of the contract, your situation and the different laws that apply.

Contact the retailer, manufacturer or service provider

If the problem is related to consumer products or services supplied by a business, you can ask for the remedies set out in the Consumer Guarantees Act or the Fair Trading Act. Hold on to your paperwork, including the contract and any correspondence before or after the contract was entered into.
See also:

If the problem is not covered by the Consumer Guarantees Act, contract law can be quite tricky.
You may need to get legal advice. Look at the contract first when you are trying to understand your rights.


Next steps

If you are unable to resolve your issue directly with the retailer, manufacturer or service provider, our Resolve It tool has information to help you take the next steps. These may include going to the Disputes Tribunal or District Court.

Resolve it: Contracts


Need more help?

Contact us for more guidance.

 

Common situations

Contract by minors

Julie enters into a gym contract with her local gym. She is 15 years old and working part-time. The contract is a fixed-term contract for two years. Julie wishes to cancel her membership after six months as she is no longer working and can’t afford the weekly payments. Her right to cancel the contract depends on whether the gym can prove that the contract was fair and reasonable, as she is a minor and the contract is otherwise not enforceable.

Illegal contracts

A contract to supply a pet shop with endangered species such as tuatara is not enforceable as it is illegal under the Endangered Species Act to trade in endangered species.

Incapacity

Joe has a mental disability and lives at home with a caregiver. A door-to-door salesman knocks on the door and sells Joe an expensive house alarm without his caregiver being present. Joe is a bit confused about the sale and when his caregiver returns home she is not happy with the alarm as they don’t need it. Joe has the right to cancel the contract within the first five days of receiving the contract. The contract may also be unenforceable unless Joe fully understood the nature and effect of his decision to purchase the alarm.

Duress and undue influence

Kirsty needs to get some money to buy a car to get to work as her last one died. Kirsty goes to a loan shark for the money, who says she needs a guarantor. On the advice of the loan shark, Kirsty pressures her grandmother and threatens to cut her off from her grandchildren unless she acts as a guarantor for the loan. The grandmother reluctantly signs the guarantee as she doesn’t want to miss out on seeing her grandchildren. Later, when the loan shark tries to enforce the guarantee against the grandmother, she may be able to claim undue influence and duress to cancel the guarantee.