Sale of goods and supply of services

A contract is not necessarily a formal written and signed document. Broadly speaking, a contract is simply an agreement between two or more people, where each promises to do something for the other. In most cases, this could be a written or oral agreement.

We would always recommend that contracts are in writing. Although oral contracts are perfectly valid and enforceable, if something goes wrong there may be difficulty in enforcing the terms of the contract.

There are certain core elements which produce a valid contract. The absence of one of these elements can be fatal.

Offer and acceptance:

An offer is an invitation by the offeror to be contractually bound to a set of terms. There must be an objective manifestation of intent by the offeror. An offeror will be bound if he has induced an offeree to believe that he intends to be bound by the terms. This happened in a case where a university made an offer to a student as a result of an administrative error.

A distinction is drawn between an offer and an invitation to treat. The latter merely being an invitation to consider an offer or offers. Good examples are advertisements, auctions and displays of goods in shops.

Acceptance is a communication from the offeree to the offeror of his/her acceptance to the terms of the contract. An acceptance must also have an objective manifestation of intent to be bound by the terms. The offeree must accept the precise terms of the offer as any variation of the offer would constitute a counter offer.

Intention to create legal relations:

This term is used to describe the doctrine that both parties to a contract intended that the terms of the contract are to be legally binding. In a commercial context, this is fairly obvious and one party would struggle to argue that there was no intention to be legally bound by the contract (unless there we very unusual facts to suggest otherwise).  The intention to create legal relationships becomes more problematic in the family, social and collective contexts. For example, an agreement between two family members is unlikely to satisfy this requirement.

Certainty of terms:

If the terms of the contract are vague or abstract, there may be a risk that the contract is invalid. Alternatively, a court has the power to enforce a contract by filling in the gaps in the terms. For example, in commercial contracts, a court may imply terms that are common in a certain industry, trade or custom to make the contract enforceable.

Consideration:

This refers to the transfer of value between the parties. Traditionally, there is a requirement that the promisee gives value to his detriment (exchange of money etc) to the promisor in exchange for something.

Surprisingly, this can be a complex area of the law, both theoretically and practically. One requirement is that the consideration must move from the promisee. This means that a party can only rely on the terms of the contract if he has provided the consideration. There are however, some exceptions in the Rights to Third Parties Act 1999. The requirement of consideration does not apply to some special contracts called deeds.

If you require advice for either contract drafting or in relation to a contract dispute, then the members of BBS Law’s litigation or commercial teams are able to guide you through that process.