Steps to follow

• A contract is an agreement between two or more persons, which gives rise to obligations that are enforceable by law.
• Has an offer been made? In legal parlance, an offer must be made and this offer must be accepted. For example, produce on display in supermarkets amounts to an ‘invitation to treat’. An offer is made only once the customer takes the goods to the checkout. At that point the supermarket cannot change the advertised price. Only once the customer pays is a contract made.
• To be enforceable, there must be a consideration involved, for example, payment in return for goods or services. If there is no consideration then there is no valid contract as it is a gift.
• Both parties must intend to make a legally binding contract at the time of agreement for a contract to be made.
• Is the contract written or verbal?  A verbal agreement is a legally binding contract although some types of contract must be written, such as property sales and copyright transfer. It is always safer to make a written contract as verbal agreements can be difficult to prove.
• Are you drafting the contract yourself? If so, be clear and specific when outlining the terms and conditions. Try to identify the parties, products or services, timescale, price, form of payment and any special circumstances. Include names and addresses. Avoid ambiguity. Include terms about what will happen if payment is late or the contract is breached in some other way.
• Make sure the contract is dated and signed by both parties.
• Be pedantic. Spell out the obligations rather than make assumptions. Who will deliver the equipment? What if the equipment is faulty?
• Who is your contract with? A company or partnership or other organisation is a ‘legal person’ in the eyes of the law. Therefore, you can make a legally binding contract with a company, partnership or other legal entity. Contracts between businesses and consumers and between businesses and other businesses are treated differently in the eyes of the law.
• Is the contract with a private individual? If so, that person is a consumer and is given greater legal protection than a business. Under the Sale of Goods Act 1979, for example, products must be ‘fit for purpose’, of ‘satisfactory quality’, correspond with their description, and be ‘sufficiently durable’.
• A wide range of statutes protects consumers, including the Consumer Credit Act, Sale of Goods Act, Supply of Goods and Services Act and Distance Selling Regulations.  Therefore, be extra careful when arranging a contract with a consumer. It may be worth consulting a lawyer if you sell goods or provide services as a business.
• Are all the terms and conditions fair and reasonable? If not, the contract may still be valid but there may be problems further down the road. If the other party challenges the offending term then a court could find it unenforceable or even pronounce the entire contract void.
• Consumers have more protection than businesses as far as unfair terms are concerned. For example, consumer contracts should not have clauses that create a “significant imbalance” in the parties’ rights and obligations. In other words, the consumer should not be exploited by the might of the corporation.
• You cannot enter into a contract to do something illegal. Equally, some matters that are perfectly legal are beyond the reach of contract. For example, you cannot exclude liability for death or injury.
• If the other party breaches the contract, then you can sue for damages in a civil court. Your damages are likely to reflect your losses as a result of the breach. Bringing legal action can be time-consuming and expensive therefore you should weigh up the cost before proceeding. Arbitration or mediation may be a more suitable remedy.

What to watch out for

Don’t ask a solicitor to help you draft a contract until you are clear about the details. It is a good idea to try to draft it yourself before presenting it to a solicitor. Their job is to make the wording legally watertight and enforceable. Your job is to know what you want.

Solicitor’s top tip

Does the other person have legal capacity to enter into a contract? You cannot make a contract with a minor without parental consent, a person of unsound mind, or a person who does not have the authority to act on behalf of another person. A person of unsound mind means someone who lacks the ability to understand what they are doing. This includes people who are drunk or under the influence of drugs at the time of agreement. If the person signing the contract is acting on someone else’s behalf then you should make sure they have been given authority to do so.

Useful links

Free advice

www.contractsandagreements.co.uk
www.businesslink.gov.uk
www.businessballs.com
www.tradingstandards.gov.uk
www.oft.gov.uk
www.oft.gov.uk
www.oft.gov.uk
www.consumerdirect.gov.uk
www.adviceguide.org.uk
www.businesslink.gov.uk

Online services

www.smallbusiness.co.uk
www.contractsandagreements.co.uk

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Overview of commercial agreements
Overview of product liability and product liability defences
Problems with goods and services
Your consumer rights