Practical Contractual Advice

Contracts of one form or another govern most commercial relationships. They are the foundations of the business and it is essential, therefore, that they are drawn up correctly, taking professional advice where appropriate.

The main elements

Broadly there are four key components to a contract which include:

Consideration - an action, product or service which will be provided in return for something of value, usually, but not always, money.

Certainty - the contract must be certain and clearly state what is expected of all parties.

Legal Purpose - all parties must genuinely intend to enter into a legally binding agreement for a legal purpose.

Terms - the contract must offer and be accepted on the same terms for all parties.

So, what are the types and what regulations are involved?

Whilst, generally, contracts may be agreed in writing or verbally, certain types of contract must be in writing. These are contracts relating to land or property, personal guarantees, employment contracts, consumer credit transactions and hire purchase agreements.

Even where there is no requirement, however, it is obviously preferable for the agreement to be in writing as there is then much less scope for disagreement at a later stage.

However, although a contract may be agreed verbally, even without a witness present, not all verbal agreements are necessarily contractual. Certain types of agreement may be deemed not to be legally enforceable. For example, a ‘gentleman’s agreement,’ because this suggests something binding in honour and not law; or favour arrangements, such as your agreeing to give a friend a lift to work one day in return for them returning the favour another day.

There are, in addition, specific regulations applicable to certain types of contract, for example: An employer must give written details of the terms and conditions of employment to an employee within two months of joining the business.

Also, transactions and hire purchase agreements of less than £25,000 in value to individuals are subject to the Consumer Credit Acts. Any trade agreements must not contravene the Competition Act through being deemed to be anti-competitive.

Such additional regulations are designed to protect individuals and businesses from unfair practices through incorporating specific safeguards. It is important that any contract is drawn within the boundaries of such legislation, as failure to do so may render the contract unenforceable and subject to financial penalties.

The Golden Rules

Particular points to take note of when drafting a contract include:

• Ensure any terms agreed subsequently are formally accepted by all parties; otherwise they are unlikely to be considered part of the contract.
• Ensure the individual you are negotiating with has the power to enter into the contract – he may not be authorised by his employer to deliver what he is promising.
• Ensure there can be no misunderstanding as to whether the consideration is a gift or a loan. What you think is a gift could be intended by the other party to be a loan.
• Never assume families will never fall out. If you borrow money from within the family, clarify the terms, write them down and have all parties sign the agreement.
• Don’t commit yourself to a contract until you are sure it is fully acceptable to you. If you don’t understand a clause take legal advice and if necessary get it amended.
• Mark all correspondence prior to signing the contract ‘subject to contract’.

Finally, do ensure that proper legal advice is obtained before drawing up or entering in to a contract you do not fully understand. Contract law can be complex, particularly in retail situations and it is false economy not to take professional advice at the outset.