Contractual disputes can be very costly and can disrupt the everyday running of your business. What begins as a minor misunderstanding as to contract terms can escalate into a serious dispute - causing you both stress and financial difficulty.
However, having a basic understanding of how contracts are made and how they work can assist you in avoiding contractual disputes and help you understand your position when disputes arise. Furthermore, having clear, well-drafted contracts can give you peace of mind that your business relationships are ones that you feel comfortable with, and will let know where you stand.
How is a contract formed?
A contract is formed when five basic elements are present:
- An offer is made
- The offer is accepted
- Consideration is provided
- There is an intention between the parties to create legal relations
- There is certainty around the contract terms
You should keep these elements in mind throughout business negotiations.
Does a contract have to be in writing?
This is a common misconception. Contracts can be in writing, but may also be formed by word of mouth or partly in writing and partly by word of mouth.
They may also be implied from the conduct or actions of the parties to the contract. If you are involved in negotiation, it is important to always consider the five basic elements of a contract and whether these are present in your dealings with another party. Often, business owners find that they are party to an implied contract, or that no contract exists where they believed the other party would be bound by their obligations.
Whilst oral contracts are legally enforceable, it is always a good idea to have a written contract. Such a document will record the terms of your agreement with the other party, and can be used as evidence if a dispute arises. It is also important to note that in certain circumstances, a written contract is required by law.
What constitutes ‘offer’ and ‘acceptance’?
Under the law, a contract is formed where one party communicates an offer and the other party communicates their acceptance of that offer. He law concerning exactly when an offer or an acceptance is made can be complex, and will depend on the precise circumstances of each case. The important point to note here, is that the courts are flexible in their approach as to what constitutes offer and acceptance, and may find an agreement exists through applying principles of fairness, intentions of the parties or even in the interests of public policy.
Does a written contract need to be signed to be effective?
When a contract has been set out in writing and demonstrates that the parties intended to create formal legal relations, the courts will normally infer that the parties do not intend to be bound by the document until the have both signed it. However, where there is evidence that the parties did intend to be bound by the contract, the courts will be more flexible in their approach.
What are ‘express’ and ‘implied’ terms?
Express terms are those which have been expressly set out by the parties to a contract. This may be in writing or orally.
Implied terms are those to which parties may be bound, but that have not been expressly set out. Implied terms may be present on the basis of:
- The parties’ previous dealings
- The intentions of the parties
- Common law
What remedies are available for breach of contract?
Where one party to a contract fails to fulfil some or all of their obligations, a breach of contract will have occurred. There are a number of remedies available where a contract has been breached, and those available will depend on what is most appropriate for the circumstances.
The innocent party to a breach of contract may be entitled to claim damages for any financial loss suffered. The sum of damages awarded is designed to put the innocent party in the position the would have been in had the contract been fully performed. However, this can be difficult to quantify and not all damages can be recovered. Where loss suffered is deemed to be too remote to have been foreseeable, it is unlikely to be recoverable.
There are occasions where damages alone are not a sufficient remedy, and so damages may be awarded alongside other equitable remedies.
Specific performance is an order made by the court that requires a party to perform a positive obligation under a contract.
The court can also order a party to perform a negative obligation using an injunction. Injunctions fall into two categories -
- Prohibitory injunction – an order not to do something
- Mandatory injunction – an order that something must be done
Rescission is where the court sets aside a contract, and both parties are put back into the position they were in before the contract was made as far as possible.
How Selachii Can Help
Selachii is a dynamic litigation and dispute resolution law firm based in Kensington, London. Whether you are a small start-up business or a large multinational, we can take on your dispute and work to resolve it as quickly as possible so you can concentrate on your day-to-day business.
If you are involved in a personal breach of contract, or other dispute, let us represent you: we will take the stress out of trying to work through a solution and bring it to a satisfactory conclusion swiftly so you can get on with your life.
We don’t believe in simply handing out one-size-fits-all solutions to problems. We will focus on your specific circumstances before working out the best and most cost-effective way of helping you achieve your aims.
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