When is a Signed Contract Not Binding in England and Wales?

Business owners need to know when they have entered into a legally binding contract. Indeed, many business owners can succumb to the pitfalls of trying to depend on a contract that is not legally enforceable. Importantly, a signature does not always mean that the terms of a contract are legally binding. For that reason, many business owners looking to rely on a legally binding contract can often find themselves unable to depend on the terms of a contract. This is problematic as doing so can cause substantial losses. This article will describe when a signed contract is not binding in England and Wales. 

How Do Contracts Work? 

As a business owner, you need to know the fundamental principles that enable a contract to work. Without these five formalities, you will not be able to create a legally binding arrangement that you can rely on to enforce other entities to do business with you. You must have: 

• an offer;
• acceptance;  
• consideration;
• clarity of contract; and 
• both parties must have an intention to create legal relationships.

Offer and Acceptance

For a contract to exist, one party needs to make an offer to another party. That offer must outline the contract’s main terms. For example, you could offer the sale of a piece of computer software for £100. The offer is essentially a promise to do business with another person. 

Should you wish to accept an offer, then a contract will become live at the point of acceptance. Acceptance is your ascent to be bound by the basic terms of the contract. In contract law, one common method to show acceptance is by signing a contract. 

Consideration

The third element you need for a contract to be legally binding is consideration. Consideration is a legal term that you can think of as payment of some form of value.

However, some contracts do not always operate using money. For example, some businesses might exchange services for services or a set of goods for a service. In these cases, consideration expresses the transfer of something of value moving both ways in a contract. 

In any case, you cannot have an enforceable contract if you do not have consideration that moves between the parties in that contract. 

Intention to Create Legal Relations 

This is perhaps one of the most important factors in showing that you have a legally binding contract. You will not have an enforceable agreement if you cannot prove that both parties wanted to enter into an agreement.

Clarity of Contract

Finally, the terms of your contract must be clearly set out so that all parties understand them.

If your agreement’s terms are unclear or provide any uncertainty to the parties involved in that contract, your agreement may not be legally enforceable. Establishing clear terms is particularly hard in verbal contracts with undocumented terms. 

Signing on the Dotted Line

Getting a person’s signature on a document may act as a final assurance that you have created a binding contract. However, if you do not have any other elements that make up a contract, that agreement may not be enforceable, even if all parties have signed it. For example, if a contract’s terms are unclear, you might not be able to rely on them to enforce another party’s obligations. Furthermore, other situations may compromise a signed contract’s enforceability. These are set out below.

Someone Signed the Contract Incorrectly

Execution is a legal term that describes the formality of signing a contract. When a party executes a document, they accept to be bound by the terms contained in the document.

Additionally, for a formal document like a deed, relevant parties to that agreement must sign and witness it. If you do not correctly witness a signature on a document, you will not have a legally enforceable contract.

The Contract Was Made Under Duress Or Undue Influence 

Duress is a situation where a party can force, threaten or blackmail another person into agreeing to perform a set of actions that they would not have originally agreed to. Undue influence, meanwhile, is the process where one party exploits or takes advantage of their relationship to coerce them into signing a contract. 

In either circumstance, contracts made where someone has not intentionally agreed to enter into that arrangement are not legally enforceable, even if all parties have signed a written contract. 

Unconscionable Consent

Similar to the above, unconscionable consent is where a person takes advantage of a person who is, for example, mentally incapacitated, illiterate or is a minor. The unconscionable conduct will involve acquiring their signature or ascent to a contract when they do not have the capacity to consent properly. A contract made through unconscionable consent is not legally binding or enforceable.

Key Takeaways

Signed contracts are not always legally binding. While signing a written contract can show your acceptance of the terms and conditions included in that contract, you will also need to prove that several other elements of contract formation have been satisfied before that contract can be considered binding. 

For example, you must have:

• an offer;
• acceptance;
• consideration;
• clarity of your contract’s terms; and
• an intention to create legal relations.

If you have signed a contract but do not have one of the above elements, your contract will not have a binding contract under English and Welsh law. In addition, contracts made as a result of duress, undue influence or coercion are also not legally binding. 

It is advisable to get a lawyer’s advice when creating or executing legally binding contractual documents. If you need help establishing whether your contractual arrangement is enforceable, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on [number] or visit our membership page.

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