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Contracts are vital to business, and necessary from all levels from the conceptual ideas to the end product or service and everything between.
Contract law is increasingly regulated by statute and European law. The average business is now left with is a myriad of confusing and contradictory rules determining how and to what extent contracts should be enforceable. Here are a few pointers to help you understand some of the key aspects of commercial contracts.
There are some concepts which are central to all types of contract without which a contract cannot exist. In legal terms these are offer, acceptance and consideration, as described below:
Consideration is something of value passing both ways between the parties and is essential for the contract to be binding on the parties. The courts will not assess the adequacy of the consideration as this is a commercial decision of the parties involved, and there is no requirement for the value of the consideration passing each way to be equal but there must be consideration for a contact to be enforceable (unless it is made in a deed).
Aside from lacking the key elements above, special circumstances such as fraud, illegal contracts and contracts obtained by means of duress or if one of the parties does not have capacity – because of their age or health – will render contracts void and unenforceable.
Contracts can be affected by mistake and misrepresentation in that if a party enters into a contract under the influence of a mistake of fact or law or due to a misrepresentation, the contract may be subsequently rescinded (annulled) even if the contract would otherwise be enforceable.
Contracts are an agreement. They can be altered, renewed or replaced at any time by a new agreement between the same parties. In some circumstances, the law implies changes based on uncontested conduct of the parties over a period of time.
There are various ways in which terms can be incorporated into contracts however it is not possible to incorporate additional terms after the offer has been accepted without the agreement of the other party. A common mistake is where companies include printed terms and conditions on their invoices.
The traditional English approach to contracts has been severely curtailed in the area of consumer contracts due to the influence of the European Union. Commencing with the Consumer Credit Act 1974 with the addition of the Unfair Terms in Consumer Contracts Regulations 1999, the position in respect of consumer contracts is almost the opposite to commercial contracts. Courts are taking an increasingly consumer biased approach and will interfere in almost any contract which has resulted in unfair liability on the consumer. Key areas to watch out for include:
There are specific types of contract which can present specific difficulties and complexities. Areas which have specific regulation include contracts of employment consumer credit act contracts, e-commerce contracts commercial agency contracts and contracts relating to interests in land.
There is no doubt that businesses have to deal with contracts. It is also necessary for businesses to try, as far as possible, to trade on their own terms and conditions which understand. Businesses should not assume that their standard terms and conditions will be appropriate for all contracts for the indefinite future. They should be reviewed and updated at regular intervals, particularly when new consumer legislation comes into force.
If notice of a dispute comes your way, you should seek specific legal advice prior to taking any steps. Beginning to construct your own defence may well be counter productive.
The Government is proposing to redraft the statutes to consolidate UCTA and the Unfair Terms in Consumer Contract Regulations 1999. It is not possible for the application of the Regulations to be limited without European intervention as these are based on European Law. It is highly likely that the protection enjoyed by consumers will continue and the protection enjoyed by businesses will be extended at least in part to match.
We take time to get to know you, and how your business operates. This gives us the opportunity to be able to advise you appropriately on the documentation you should have in place that governs how you do business and which afford you greater protection. Businesses quite rightly do not wish to litigate on contract law, and the courts are reluctant to delve too deeply into the commercial affairs between businesses so it is vital that you get the right documents in place at the right time.