English Contract Law: Key points

A contract is something that occurs when any form of business relationship arises. This can be as simple as the contract you have with your phone company, the contract you signed when getting your groceries delivered, or as complicated as the drafting of large shareholder contracts and partnerships. Either way, whether complicated or simple, it is nevertheless a contract.

Though we are prepared to easily sign some contracts and agreements, for example user terms and conditions of a website which most people do not even read, we are not as prepared to have to go to court to resolve a situation when there is a problem in the contract.

English contract law is not limited to just the UK, it shares common features with other jurisdictions such as Cyprus. English contract law has some key points everyone should be aware of before signing any contract. These key points are the following:

Privity of Contract

This is where it is important to remember that only the people actually party to the contract and written in the contract may enforce the terms of the agreement.

Consideration

Consideration can be anything of value that the parties to the contract must agree to exchange in order to make the contract valid. If only one party offers consideration, then the contract is not valid. Consideration can be an item or service but needs to have economic value in order for it to be considered valid in a contractual sense. Consideration should not be past consideration.

Past consideration is where you give consideration for something in the past, and then at a later date ask for a service in return e.g. giving 100 euros to someone as a gift, and then 1 week later asking that person to paint your fence and to consider that 100 euros previously given as consideration.

There are though exceptions when it comes to past consideration and that is in the case of pre existing debt. An example is when someone performs the service in the past, and then a week or more later you pay off that service.

In writing?…it depends

A contract does not necessarily have to be in writing. Gone are the days where it was necessary to have contracts signed sealed and delivered. The terms of a contract can easily be given orally over the phone. The problem in this case is that it is easy for the parties to misunderstand some things and therefore it is always better that if an agreement is made over the phone, that there is an email that follows that just reiterates all the discussed terms.

Contracts that must be in writing include sale, transfer and lease of land or property, and contracts of guarantee.

Authorized signatories and persons

It is important that to bind a contract, the signatory must be an authorized person to do so, such as a director, lawyer, or manager. The company name must also be written in full or else liability can pass to the owner as an individual. E.g. XYZ cars limited has to add the ‘limited’ to its contracts and invoices as in the past a court ruled that missing ‘limited’ meant that the owner was doing business in his own right and way liable for the debts incurred.

The company seal (stamp) must also be added when the party to the contract is the company.

Exclusion Clauses

Exclusion clauses within a contract are added in order to limit or remove liability from one or all parties. Full removal of liability is not enforceable as in law when there is a fundamental breach on one side, the other side must be given a remedy. Usually removal of liability for death of injury cannot be relied upon either and courts strike it down immediately.

Breach of Contract

A breach of contract is where one or more parties do not fulfill their obligations under the contract in which they signed. Usually in the case of a breach, the non breaching party should inform the breaching party by written notice that there has been a breach so that they can be fully aware of it and correct it. It is only after the written notice that court proceedings can be brought against the breaching party. The non breaching party can cancel the contract if a severe breach has been performed.

The drafting of a contract should not be taken lightly and choosing the right lawyer to draft it is key in forming a contract that will suit your business needs and protect you at the same time. Please do not hesitate to contact us should.