Contracts are legally-binding agreements between two or more parties. They come in all shapes and sizes. For example, a contract will be created when you buy your lunch from M&S, or when a buyer and seller enter into a formal written agreement for the sale and purchase of a house, or when a business appoints another to provide catering services.
Most contracts can be made orally or in writing, although some are specifically required by law to be in writing only. In reality, entering into a written agreement, where practical, is often preferable as it enables the parties to document their rights and obligations clearly.
Whatever the form, a contract under English law must have certain essential elements. There must be an offer made by one party to the other party, acceptance of that offer by that other party, consideration (meaning a mutual exchange of promises between the parties), a mutual intention of the parties to be legally-bound, certainty over the terms, and the parties must have “legal capacity” to contract – e.g. not be minors. Generally-speaking, there is no contract if one of these elements is missing. To give an obvious example, in most situations there would not be an enforceable contract if one party agrees to provide something to the other party with nothing being required of that other party in return, since this would mean the essential element of consideration is missing (there is an exception to the requirement for consideration when a contract is made by deed and this will be discussed in more detail in our next article).
Sometimes contract terms will be negotiated between the parties. Sometimes they are nonnegotiable – for example, if you wish to use Apple iTunes or Facebook, your only option is to accept the standard terms which govern the use of their services. Some standard terms, particularly those regarding liability, may be hidden away in “small print”, so it is worth reading all the terms carefully! Where the parties are businesses they will often both have their own standard terms and conditions. In these situations it is important to agree whose terms will apply, in order to avoid disputes later on. A written contract is usually made on the date the last party signs it, but a deed has additional execution formalities which must be satisfied.
The parties can agree that the contract (or parts of the contract) will come into effect from a different date. An unsigned contract may also become binding if the parties’ actions indicate that they intend to be bound by it.
For more information contact Beverley Whittaker or any member of the commercial contracts team.