When you think about what a contract looks like, you inevitably picture a piece of paper outlining the roles and responsibilities associated with a business relationship that two or more parties have agreed to enter into.
However, contracts can be formed without the need for signatures or even a written document at all – a fact which is commonly not understood or appreciated. This is significant, as contracts define the legality of our interactions every day.
Notwithstanding the role they have in dictating the nature of relationships in business and protecting the rights of the parties involved, the formation of different types of contracts have a few core characteristics in common.
The five elements of a legally binding contract:
An offer is made when an individual or business makes a proposal to another that identifies clear terms which will regulate the agreement between the parties and demonstrates that they intend no further bargaining to take place. This is distinct from what is known as an ‘invitation to treat’ which is merely an indication that a party is prepared to negotiate the terms of an agreement, rather than to offer specific terms, which, once accepted, form the basis of a legal agreement (i.e., a contract). By way of example, if an antique is being placed for auction, this is merely an invitation to treat – the owner is demonstrating that he is willing to sell the antique, however, there are no clear terms upon which this invitation can be accepted, and, therefore, no offer. Once a separate entity makes a bid, there are clear terms upon which the offer can be accepted.
Acceptance can only be made in response to an offer and must mirror the offer, without adding further terms to the agreement. If a party declares that they ‘accept’ an offer on the condition that another term is incorporated into the agreement, this will constitute a ‘counter-offer’, and only form the basis of any agreement if it is then accepted by the other party. Generally, acceptance must be communicated in writing or verbally to the other party, however, there are circumstances where acceptance can be made by conduct or course of dealing.
Without consideration, an offer which has been accepted cannot be enforced. Consideration is something which is given in return for something else (this will be defined in the offer) and demonstrates mutual obligation. This is most commonly known to be a sum of money passing from one party to the other. However, there is no prescription for what consideration must be, so long as it has some value. Even if that consideration appears to be inadequate in the context of what has been offered in exchange, the law will generally not interfere with negotiations which took place between the parties.
Intention to create legal relations
This is when both parties express a clear and mutual understanding that they want the agreement to be legally enforceable. When a court is considering a dispute as to whether a contract has been formed, one party often makes the argument that they did not intend to enter into legal relations. When two businesses come to an agreement and offer, acceptance and consideration can be established, there will be a presumption that the parties intended to be legally bound. However, if an agreement was made in a domestic setting, such as between friends and family, the formality of that agreement becomes less self-evident, as domestic agreements can lack awareness of any legal consequences. In summary, intention to create legal relations must be looked at on a case-by-case basis and is sensitive to the circumstances surrounding the initial agreement.
Certainty of terms
Fundamentally, unless there is a clear understanding between both parties as to each of the terms of an offer which was initially made and ultimately accepted, there can be no binding obligation. If the parties have a complete agreement, but for one term, there is no certainty of terms, and therefore, no enforceable contract, as it will be regarded as incomplete. Therefore, in all circumstances where parties intend to enter into a contract, any hint of ambiguity should be avoided at all costs!
How can our contract dispute lawyers help?
Our contract dispute lawyers marry together the strong technical understanding of contract law with the pragmatism to advise you in accordance with your specific matter. We act both for claimants and defendants, businesses and individuals.
We encourage you to contact us at the outset of a dispute to prevent costs escalating. We will usually be able to advise you on the contractual position, discuss your intentions and work out an initial plan to try and resolve the dispute quickly if possible. Should the contractual dispute become court proceedings, we will fight for you all the way and discuss funding options with you to ensure you can contest the litigation without fear of being out of pocket.
Get in touch with us today on (0) +44 0207 228 0017 or fill out the form below to discuss your options.