Often within business, owners, management and employees are faced with the question: “Do we have a contract in place?”
For example, you may have a dispute with your customer or supplier, or questions have been raised about your role in a particular business relationship (such as the scope of works agreed), volumes and description of products may be questioned, or you may even be asked about payment terms or delivery dates. If you don’t have a contract in place there may well be consequences….
So what are these potential consequences? If you don’t have a clear written contract in place some of the following may happen:
Lost management time
Costs of obtaining specialist advice, including legal costs
Provision of additional goods or services as a goodwill gesture
Settlement costs to avoid a dispute or litigation; and
Damage to reputation
It is best practice to have absolute clarity and certainty as to the terms agreed by having the right contractual documents in place. So what does this mean exactly? Typically such documents include:
Standard terms and conditions for your business, for straight forward everyday transactions, provision of goods and/or services to your customers etc
A form of a customer agreement for signature, often used for larger customers
An agreement or terms and conditions to use with your various suppliers
Any other necessary contracts, depending on the nature of your business (and don’t forget about GDPR compliance!)
Other contractual documents, including quotations, order forms, invoices, incorporating your standard terms and conditions by reference
Internal procedures to ensure that contracts are only formed in a certain way and by authorised employees or executives only
And don’t forget about GDPR compliance when drafting contracts as this may be applicable!
If you don’t have a clear written agreement in place accepted by all parties, you may still have a contract in place but you will need to analyse how it was formed, what the terms are and what evidence you are going to rely on to prove that certain terms were agreed.
Under English law, a contract or an agreement may take different forms, including:
Oral, such as terms agreed during a telephone conversation
Part written – part oral, where you might have an exchange of emails and some conversations around contractual terms, including any notes of such conversations
Written – which may in itself be in the form of standard terms and conditions, incorporated by reference or course of dealing, a signed contract, an exchange of emails, text message and similar
Implied from the conduct of the parties
Industry accepted standards may sometimes form part of a contract
Battle of the forms – where each of the parties insists that its own terms are applicable and both have been communicated to the other party
Regardless of the way a contract is formed, the following elements are essential to any contract formation:
An offer needs to be specific, complete, capable of acceptance and made with the intention of being bound by acceptance; so it must contain the basic terms. For example, if there is no price stated or how that price is going to be calculated, there is probably no valid offer in place as price is an essential term to many contracts. An offer may be terminated by the offeror for example due to limitations outlined in the offer itself, such as a certain price is only valid for a limited period of time.
A valid contract is formed only where an offer is accepted, with the acceptance being a final and unqualified assent to an offer. If your “acceptance” includes proposals or variations of terms proposed to you, you are still likely negotiating a deal rather than closing it.
There is a concept of reciprocity in contract law, meaning that a promisee cannot enforce a promise unless he or she has given or promised something in exchange for it (excluding an agreement to make a gift of course). A simple example of this is where one of the parties provides goods or services and the other party pays.
Intention to create legal relations
There is a presumption that the parties in commercial circumstances intend that their agreement is legally binding.
Certainty of terms
All necessary important “material” terms must be agreed for a contract to be valid or binding. An obligation to negotiate is not normally enforceable.
The factors that may affect contract formation include:
If a contract is subject to a condition precedent which does not occur, such as where a parent company guarantee is needed for an agreement to come into force
If the parties lack the legal capacity to make a contract
If the objects of the contract are illegal or contrary to public policy
If the contract is not in the proper form, in the limited number of situations where a particular form is required
If the contract is made by a person or persons who lack authority
We hope that you have found this article useful but often some expert legal advice is needed so please feel free to contact LawBite if you have any questions or need help with drafting your contracts. You can take advantage of the free 15 minute legal consultation or the contract review service by calling the LawBite team on 0207 148 1066 or entering an enquiry here.
Equally feel free to contact the GDPR support team if you have any questions around GDPR compliance and your contracts by calling our GDPR hotline 0845 241 1843 or entering an enquiry online here.