How Do I Know If I Have Agreed To A Business Contract?

As a business owner, you may find that you are frequently entering into contracts with other businesses. Entering into a business contract comes with certain rights and obligations to the other party. It can also open you up for potential legal liability if you breach one of your contract terms. This could mean you end up in court and have to compensate the other party. As a result, it is important to know the requirements of a business contract so that you can be aware of your obligations and avoid liability. This article will explain the requirements of a contract and touch on some key points to keep in mind. 

What is a Business Contract?

A business contract is a contract that you enter into in the course of business. A contract is a legally binding promise to do something for the other party. The other party reciprocates this with a promise to you. 

Importantly, you can have a legally binding oral contract, where you make your agreement without writing anything down or using formal legal documents. A contract, including verbal contracts, has four key requirements in the law of England and Wales. These are:

• an offer;
• an acceptance;
• consideration; and
• intention to create legal relations. 

What is an Offer?

First, you must have made an offer to the other party. You must have the legal and mental capacity to make such an offer.

A court will deem you to have made an offer if you make a suggestion of the terms of the agreement and you seriously intend to be bound by those terms. For example, suppose you inform another business owner that you will ‘deliver 5 watermelons next week’. In this case, you have stated your contract terms. If the other party accepts the offer, you will be bound by it. 

What is Acceptance?

Acceptance follows an offer and is where a party indicates that they are willing to be bound by it. Usually, what counts as an ‘acceptance’ will be obvious. However, it is not always so clear. English courts have clarified that non-response cannot amount to valid acceptance. 

If you are unsure if your offer has been validly accepted, it is a good idea to seek legal advice from someone who can assess the precise facts of your agreement.

What is Consideration?

Consideration is the requirement that a contract must be for something of value. If there is no consideration, there can be no binding contract. Importantly, consideration must pass from both parties. This means you and the other party must exchange something of value. 

However, consideration does not need to benefit the other party as long as it is a detriment for you. An English court has found that even a piece of peppercorn can count as good consideration. 

You cannot have a legally binding contract for a promise to do something for nothing in exchange. The exception is if the agreement is made in a signed deed. 

What is an Intent to Create Legal Relations?

When making an offer, you must genuinely intend to enter into a binding contractual relationship with the other party. As a result, if you make your agreement as a joke and you can prove it was a joke in court, the contract will not bind you. However, this is usually difficult to do if consideration moves between both parties and there is a valid offer and acceptance. Importantly, the courts will usually look at the context of your agreement to decide if you intended to create legal relations. 

What If I Have Not Created a Business Contract?

Given these requirements, if you have not created a business contract, you will usually not have any legally enforceable obligations to the other party. However, contacting the other party and clarifying your legal relationship is generally a good idea. 

Key Takeaways

A legally binding business contract has four key requirements: offer, acceptance, consideration, and an intention to create legal relations. Making sure you have a legally binding contract is important as it will clarify your exact legal relationship with the other party. This will be useful if you need to refer to the contract or find yourself in a dispute.

If you have any questions about your contract, 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 on the differences between a deed and an agreement. Call us today on 0808 196 8584 or visit our membership page.

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