Is it Binding?

First, there are those who want to be able to use the agreement to take action against another party that may have failed to comply with its obligations. Such action may typically involve seeking damages for losses suffered as a consequence of that breach and/or using the breach as grounds for bringing the business relationship to an end.

Secondly, it is sometimes the case that businesses wish to try and avoid their obligations under an agreement. This may be due to a change in circumstances affecting that party’s business, a realisation that the party has entered into a bad bargain, or a mistake affecting that party’s understanding of the nature of the agreement.

In such situations, knowing early on whether or not the agreement and its terms are likely to be enforceable is vital.

Is there a contract?

Lawyers always advise that it is not necessary for agreements to be recorded in writing in order for them to be binding. Save a number of specific exceptions, this is indeed the case. It is also not necessary for written agreements to be signed. In English law there are very few instances where contracts are required to be in writing and signed by the parties. Instead, once certain requirements are met, a legally binding agreement is created.

There must be an “agreement”

This means that one person makes an offer and the recipient of that offer accepts it. The general rule is that the contract is formed at the point of acceptance.

Each party must have agreed to do (or indeed not do) something

Lawyers call this ‘consideration’. Commonly, one person will provide goods or services whilst the other will provide payment in return. Although all parties must provide consideration, there is no requirement that the consideration provided by each party is of equal or similar value.

The parties intend to be legally bound by the agreement

If you’re in business and dealing at arm’s length then this intention is presumed.

Because of the relative ease at which contracts can be formed, care must be taken when proposals are put forward which are not intended to be capable of legal acceptance. Words such as ‘subject to contract’, although not conclusive in themselves, are often used to indicate that an agreement in principle is not binding until formalised in documentary form. The point at which binding obligations are created is crucial. Those who sell products online must be careful not to automatically generate emails (by reference to the content of their website) which accept orders made by customers, without first having the opportunity of reviewing those orders. Where the information on the website is incorrect, the consequences can be disastrous.

What are the terms of the contract?

The terms of a contract can be drawn from a variety of sources such as documents, letters, emails, meeting minutes or the contents of telephone calls. Terms are also be implied automatically by law. These implied terms vary greatly depending upon the type of contract and the relationship between the parties.

Sometimes, disputes arise concerning whether or not a party’s written terms actually formed part of the contract.  One party may argue that they were not aware of the terms or even that their own written terms apply instead.  Disputes of this nature can only be decided on the evidence of the parties’ conduct leading up to acceptance. It is therefore important, when using standard form contracts such as written terms and conditions of business, to make sure that the other party has had the opportunity of considering them and expressly acknowledges that they apply.

Am I bound by the terms?

Just because a contract is written down and signed does not automatically mean that it is binding. Instead, the meaning of the terms must be considered to determine whether or not they can be relied upon. This is particularly important when dealing with consumers whom are protected by a raft of legislation. Whilst I do not propose to go into detail here, care must be taken when for example preparing terms and conditions or when selling products to the public online.

When dealing with commercial relationships, the courts tend to defer a great deal and allow those in businesses to make their own bargains. That said, as a general test, contract terms must be reasonable. Certain specific types of clause have also, over time, been deemed illegal and so unenforceable by the courts. Such clauses include those which require the performance of an illegal or immoral act or those which provide for the payment of arbitrary penalties for breach.

The circumstances of a contract can also dictate whether or not a party is bound. When the performance of obligations under a contract has simply become impossible, with no-one at fault, it may be the case that the parties are excused on the basis that the purpose of the contract has been ‘frustrated’. The time at which agreement was reached must also be considered. Whilst a mistake by one party will rarely be a defence, a mistake by both parties as to the terms agreed can be. Any undue influence or threatening behaviour by one party which forces another party to put pen to paper will also cause an agreement to be deemed unenforceable.

Progression Solicitors has a team of commercial lawyers who will be able to advise you in relation to any contract issues, disputes or litigation that you and your business may encounter. Matthew Ratcliffe is an associate at Progression and can be contacted on 01229 580 956 or by emailing matthew@progressionsolicitors.com

Whilst we have made every effort to ensure the accuracy of the information given in this information sheet, this information is provided for general information purposes only and no warranty or representation is made as that the information is completely free from errors or inaccuracies. Specific legal advice on this topic will vary according to individual circumstances and should be sought in every case. Any advice given in this sheet does not constitute legal advice and shall not without our express written consent in each individual case be relied upon by any person.