Q1: I verbally agreed with another business to carry out work for them. Does our agreement constitute a binding contract?
A: An oral agreement can be legally binding providing the basic requirements for a contract have been met. However, contract law can be highly complex. In this instance you may well have entered into an oral contract that is binding, though whether or not a contract exists, would depend on the exact circumstances of your situation.
In trying to establish whether or not a binding oral contract exists, the courts have to deal with the issue of establishing the terms of the contract. The exact terms of the contract may be hard to evidence, so where appropriate, the court may examine the conduct of the parties after the alleged agreement was made, in order to determine whether or not a contract exists and what the terms of the contract are.
Although oral agreements can be legally enforced in the courts, we advise our clients that it is best practice to have a written contract, as we believe a concise and straight-forward written contract allows confidence in the relationship to grow as the parties to the contract know what is expected of each of them. The contract can even provide for how any disputes that do arise are to be resolved.
Some types of contract are required by law to be in writing, for example, a consumer credit contract. In addition, any contract that contains a guarantee needs to be in writing to be legally binding.
The requirements for a basic contract are as follows, and are fairly self-explanatory:
- Consideration (a mutual exchange of something of value between the parties)
- Intention to create legal relations
- Certainty (of the terms of the contract)
Please note however, that the individual making the contract must also have the capacity to do so. Special rules apply to minors and people who do not have the mental capacity to enter into contracts.
For a confidential discussion about contracts and the issues that are concerning you, call us now on 01223 632420 and arrange an appointment.
Q2: A company with which we do business has breached our contract and I’m not sure that damages will help. Are there any other remedies that might be available?
A: Usually the innocent party to a breach of contract will receive damages from the breaching party to put them back in the position they would have been if the contract had been performed correctly.
However, the damage done to your firm by the breach of contract may be difficult to quantify, and some of the consequences that flowed may be considered too remote. This can mean that not all damages will be recovered.
If the court does not feel that damages are a sufficient remedy to the breach, the court can make other orders of disposal to ensure an equitable outcome for the wronged party.
Such methods of disposal include specific performance and rescission, although an order for rescission may be difficult to achieve as it may no longer be possible to put the parties back in the place they were before the contract was made.
If you are involved in a contract dispute or are considering litigation because of a breach of contract, our expertise could help you. For a confidential discussion about the issues that are concerning you, call us now on 01223 632420 and arrange an appointment.
Q3: I have decided to form a business partnership with a friend selling bicycles. Should we consider using a standard terms of business document?
A: Whilst you are free to enter into oral contracts, if you have a business that sells goods or services that are consistently similar, it makes sense to have a document that outlines the standard terms of business for each customer or client. However, if your business is providing bespoke goods or services that tend to vary from client to client, then it may be advisable to negotiate and draft a separate agreement each time you enter an agreement.
When drafting your terms of business you should include what each party is agreeing to. The type of clauses that you should probably consider using should for example, include, a description of the goods/services provided, the price to be paid and any specific payment requirements, as well as the period in which the contract is to be performed. You may wish to include any clauses that seem necessary in the circumstances, such as when delivery is said to have been taken by the customer. In addition, you should carefully consider any standard clauses relevant to carrying out your particular type of business. However, it is important to note that generally, the courts view business to business contracts in a different light to those between businesses and consumers who are given greater protection from unfair contract terms.
There are certain issues and responsibilities that cannot be excluded by standard or non-standard terms of business, such as those excluding liability for death or personal injury caused by your negligence. In other circumstances, even if it is acceptable to limit your liability, the limitations you impose must be reasonable.
You should note that in the event of litigation, your terms of business could be carefully scrutinized by the court. If it has serious flaws, it may well damage your chances of litigating or defending an action successfully. For a confidential discussion about using standard terms of business agreements, call us on 01223 632420 and arrange an appointment.
Q4: I am thinking about setting up a business in partnership with a friend. Should we put our agreement in writing?
A: When you are setting up a business we recommend that you put a suitable business structure in place that is in line with your own needs, the needs of the business and the needs of other people involved in setting up the firm.
Partnership agreements are a very common and effective way to run a business. However, even if the person you wish to go into business with is a friend, we recommend that you have a well-drafted written partnership agreement that sets out everything in a document that both parties can understand.
The type of details that may need to be defined can include, amongst other things, the structure of the partnership, financial contributions and ownership, and how profits will be shared. Provisions can be included that set out what will happen in certain situations, such as when a dispute occurs, or when one of the parties wishes to dissolve the partnership.
By having a clear document setting out everything that is agreed upon by both parties, and giving them clearly defined roles and responsibilities, disputes can often be avoided. You can also build in clauses to the agreement in respect of decision-making that can allow your business to be versatile and so adapt to changes in the sector and in the economy as a whole.
If you would like to set up a business partnership and want legal advice and assistance in the drafting of the agreement, call us now on 01223 632420.