Contract Law and Business

All business transactions or undertakings are contracts. Offer and acceptance define a contract; performance and consideration describe its conditions.

Offer and Acceptance

A decision to buy something or to commission works (offer) which is agreed to (acceptance) creates a contract. Once the goods have been delivered or the works completed according to the terms of the contract (performance) and the agreed payment made when specified (consideration) the contract has been satisfied.

A contract usually comes in the form of an explicit document listing the intentions of the parties but it is equally possible to evidence a contract through undertakings contained in an exchange of correspondence or emails. An oral agreement can also evidence a contract but only as long as the conduct of the parties or a history of previous such transactions can inform a court as to the intentions of the parties at the time.

Conditions

The law is only concerned with whether or not the parties to a contract have performed all of the undertakings exchanged at the time it was entered into.

Supply must accord with what was promised and be fit for the intended purpose. Payment for the supply must be made according to what has been agreed:  These are the fundamental conditions of any contract.

There is no cooling off period for business contracts. Citing subsequent difficulties, for example an unforeseen increase in costs to a supplier will not change the fact that they are obliged to supply a customer at a contracted price. Similarly a buyer cannot subsequently state that the supply has become “surplus to requirements” and expect to be able to repudiate the contract.

Time is of the Essence

Other conditions can be specified in a contract, for example an undertaking concerning deliveries where time is of the essence; as might be the case for a store ordering Christmas trees.

If the trees are not delivered until January that could clearly be regarded as a conditional breach of contract, unless otherwise specifically agreed to. The buyer would then be entitled to rescind the contract and sue for loss of business.

If however delivery rested on an assurance that the trees would be delivered "in good time" and delivered before Christmas but so late that the store was faced with no option but to clear them at a lower price than originally intended, an action for damages might then rest on the difference in income this represented.

Consideration

An agreed transfer of value in exchange for a supply defines consideration. If no reciprocal value is called for the contract is gratuitous; making it a promise of a gift, which is unenforceable in law.

Usually consideration will be payment in cash but it can also be an undertaking to perform an act or an act of forebearance. An example of consideration by performing an act is if the buyer undertakes to run an advertisement or a link to the supplier’s website on their own website for an agreed period in return for the supply of goods or services.

If however forbearance is the agreed consideration it cannot represent something that is contrary to the law; for example an undertaking not to compete.

Legal Remedies for Breach of Conduct

Where payment or other agreed consideration has been withheld without just cause there will be a clear breach of contract and obtaining judgement for that is relatively straightforward.

An action for damages resulting from other breaches of contract may be a far more complex matter though. It is therefore always a good idea to seek legal advice before issuing any threat or notice of action.

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