A brother and sister wanted to start a family business and entered into a shareholders’ agreement.

The brother signed what he believed to be the final version of this agreement, when in reality he had accidentally signed an earlier draft that had an incorrect way of valuing the shares on sale in the event that either of them was wanting to sell to the other.

A few years later the brother decided he wanted to sell his shares back to his sister. He noticed that the agreement was wrong. This created problems for him as the true value of his shares was to be determined by this incorrect contract, substantially devaluing his shares.

The parties had to engage in months of negotiations through their lawyer, and managed to agree on a figure, but it was not what either of them had expected when signing the contract, and it ruined their relationship.

Contracts and agreements are a part of everyday life and it is very easy to quickly sign on the dotted line, especially where you have not had a lawyer involved in the process.

We have put together some basic tips below, which should help to save you from expensive mistakes.

Tips to ensure that a contract is what you are expecting

1.    Make sure you read the contract before you sign it:  is important to look for any inconsistencies between your understanding of the agreement you are entering into and what has been written in the contract/agreement.

If you notice anything that seems unusual or vague, refrain from signing and ask for either clarification of the terms in the contract or a redrafting of the obligations in the contract.

2.   Check the contract does not contain a ‘draft’ watermark or any tracked changes on it if you receive an online version: if the contract contains any of these, it may be an outdated or unfinished version. 

3.   Ensure that this is the latest version of the contract: if you have negotiated with the other party about terms of the contract, it is important to ensure you are signing the final version of the contract.

You can often identify if this is the case by keeping an eye out for things such as the exclusion of terms you wanted to include, wrong definitions, or the inclusion of old obligations you had agreed to remove.

4.   Follow any witnessing requirements: some types of contracts (generally called Deeds, but also some agreements) will require witnessing. If this is applicable, then make sure this obligation is fulfilled otherwise the contract may not be enforceable.

5.   Insist on receiving a final version: If you sign it and then it is sent off for signing by the other party make sure to  receive a final signed version of the contract. 

This step prevents any disputes that could occur regarding what version of a contract is enforceable. By making sure both parties have a copy of the contract signed by all parties at the outset, this helps to mitigate any potential issues in the future.

6.   Check the final signed version is dated: this ensures that for record keeping purposes the contract is the final version and all parties know when the contract was signed.

7.   Exercise caution when signing an agreement that is based on internet templates: Often internet templates can  include international law that does not reflect New Zealand contract law, which is likely to be unenforceable in New Zealand.

Even if it is a New Zealand template, it is still important to exercise caution as it may not consider new developments in the law or be right for your circumstances.

Ultimately, it is always recommended that you obtain legal advice before signing any contract or agreement. Your legal advisor will be able to help to ensure that the contract reflects the true nature of what was agreed and ensure witnessing is completed correctly to avoid potentially expensive issues later.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.