It is preferable that a sale contract is set out and recorded in writing. This is not essential in most cases, but it is desirable from the perspective of proof of the fact and terms of the agreement and the incorporation of the trader’s terms. The recording in writing of the terms of the contract removes or at least reduces, the possibility of disputes regarding what if anything was agreed.
The signing of a written contract or other document is not required for most commercial contracts. It is required for some types of land sale and for some wholly uncompleted contracts for the sale of goods. Even where a signature is not required, it creates a link between the signatory and the named party. It authenticates the consent of the parties to the agreement and makes it easier to prove.
A signature is usually written. The Electronic Commerce legislation gives a similar effect to other writing and markers which authenticate a document and appear to show that it emanated from the party concerned. This may include an e-mail with the party’s name, which appears to come from the party.
In principle, an agreement may exist once the essential “commercial” terms (e.g. subject matter and price) have been agreed. The law may imply the other terms. It is nonetheless desirable to set out the other terms in many cases, as the default implied position may not be satisfactory to one party or the other.
A contract document need not necessarily contain the full terms and conditions. Other contract terms and conditions may be brought in or incorporated. It is desirable that a clear reference is made to those other terms and conditions and that they have been brought to the attention of the party against whom they are claimed to apply by the party who puts them forward.
The terms and conditions may be incorporated by a prior course of dealings between the parties. The party who claims that they have been incorporated must be in a position to identify the terms and conditions and prove that the other party knew of their existence and knew that they applied to the contract.
Parties to the Contract
A contract is binding only between the parties to it. Privity of contract means that a person or corporate must be a party to the contract in order to be held to its obligations. Each party must give consideration in that they have given something singularly or jointly with others co-parties in return.
The identity of the counterparty will often be a critical matter. If a group of companies is involved, it may be critical to one party to contract with the group entity which has substantial financial resources to undertake its obligations or pay compensation for the failure to do so.
A well-capitalised trading entity in a group or among a number of related companies may disguise the fact that the entity with which the contract is made has little or no financial resources.
In dealing with a partnership or company, it is important to establish that the apparent representative with whom one is dealing, has the authority to bind the partnership or company. Most partners are assumed to have authority to enter contracts in the course of the partnership business, on its behalf. Equally, the principles of agency apply in respect of companies. See generally the sections on agency and company law.
Where one party to the contract is resident or based overseas, it is important to specify the law that applies. It is also important to specify in which State’s courts the agreement must be enforced.
In consumer cases, the jurisdiction of the consumers’ residence is generally the governing law and the place where legal action must be taken. In most cases, this rule cannot be displaced by an agreement to the contrary.
In a business to business agreement / non-consumer agreement, the choice of applicable law and the choice of court made in the contract are usually given effect.
Where the parties have yet not reached an agreement, it can be important to clarify and flag that this is the case. The courts may find there to be a contract, notwithstanding that one party does not intend to enter a contractual relationship. Sometimes clear expressions such as a statement that the correspondence or negotiation is “subject to contract” are used to confirm that a contract has not yet been formed.
In distance contracts and contracts made over the internet, there are extensive obligations to disclose information prior to the contract. It must be made available in a permanent form before the contract is entered. Commonly many of these terms and provisions will become part of the contract.
A contract may be rendered void by a misrepresentation or less commonly, by a mistake. A party should ensure that no incorrect or misleading statement or representation is made by him or on his behalf, which might be claimed to have induced the other party to the contract to enter it, which is false or incorrect. A statement which is known to be false or misleading may carry serious criminal consequences if another is misled and is caused loss as a result.
A provision is sometimes included in a contract by which the parties declare that they have not relied on anything outside the contract. There are limits to which such clauses may be fully effective. They do not apply to a statement which is known to be false or misleading.
Formation and Incorporation of Terms
Sufficient notice is required in all cases. Where the clause to be incorporated is unusual or unexpected, greater notice of the relevant term is required. The more unusual or onerous the clause, the greater the onus on the party who puts it forward, to bring it to the other party’s attention. In some cases, it is said that such clauses must be specifically pointed out perhaps in red or by a sign pointing to the clause in question.
A so-called battle of the forms may arise where the parties have passed back and forth one or more sets of their own respective terms and conditions. The question may arise as to whether either or any of them have become part of the contract. The issue may arise where one party claims to rely on its standard terms, which provide a limitation of liability or a reservation of title.
Difficult questions of interpretation can arise. Most commonly, the last form which was not contested is deemed to be accepted and incorporated.
Relative importance of contractual terms
The importance of contractual terms and the consequences of their breach may be specified. Generally, more serious breaches entitle the innocent party to terminate the contract in relation to its future obligations and to recover damages for loss caused. Less serious breaches give a right to damages (monetary compensation only).
It is often desirable to specify the effect of particular clauses. In the absence of specifying the position, the matter may be required to be determined by a court in the event of a dispute.
In reason decades, the courts have recognised intermediate or so-called innominate terms. In these cases, the seriousness of the particular breach in the circumstances determines whether it gives rise to a right to terminate the contract or right to damages only.
Sale of Goods Act Conditions
Where there is a description of the goods, the supplier must ensure that the goods meet and conform to it. The Sale of Goods Act makes it a condition that the goods will conform with their description. Generally, the courts have required that the goods conform exactly to the contractual description.
Where goods are sold by sample, the goods provided must conform with the sample. There are implied statutory conditions in respect of the fitness for purpose and merchantable quality of goods. In the United Kingdom, the goods must be of “satisfactory” quality.
There are limits on the extent to which these statutory terms and conditions and warranties may be reduced. They may not be removed in a consumer contract. They may be limited in business to non-consumer contracts where they meet a fair and reasonable test. The particulars of this test are dealt with separately.
Consumer Protection Rules
EU-derived consumer protection rules now provide for the extensive regulation of consumer sales. They are dealt with in separate sections.
Distance contracts and contracts made away from the business premises must be recorded in writing which must be furnished to the consumer in a permanent form. There is a cooling off period in most cases, in which the consumer may terminate the agreement if it chooses to do so. If notice of the cooling off period and certain other details are not given, then the cancellation period may be extended indefinitely.
In consumer contracts made on the business premises, there are now extensive obligations to make a prior disclosure of information. This information may be incorporated into the contract and become a term. If it is not incorporated, it may be a representation, breach of which may allow the innocent party to terminate the contract.
Unfair Contract Terms
The Unfair Terms in Consumer Contracts regulations are the subject of another article. The unfair contract terms regulations limit the terms that may be incorporated into a consumer contract. Unfair terms and conditions are rendered void by the regulations.
The regulations are relatively recent in origin, and their full extent has not been worked out by the court. Many of the provisions are in quite general terms, which are open to interpretation by the courts. They have a prospectively wide application.
There is a general obligation of good faith. There is an obligation to use clear language in a consumer contract. There are significant lists of clause types, which are likely to be an unfair contract term in most circumstances.
Contracts may be made electronically. The electronic e-commerce legislation contemplated formal data certification. In practice, digital signatures have been slow to evolve, but are becoming more common. In practice, the authentication of contracts has been undertaken through different more pragmatic means.
The emanation of a document from a particular e-mail source is commonly sufficient or at least presumptive evidence that the party from whom it emanated is who he purports to be.
The Electronic Commerce Act allows for a non-digital signature. It is anything which is intended to confirm the authenticity of the document. It may be in electronic form incorporated into or otherwise logically associated with any electronic communication. It may purport to be so incorporated or associated for the purpose of being used in establishing the authenticity of the communication of data, the integrity of the communication or data or both.
References and Sources
Encyclopaedia of Forms and Precedents (5th Edition) Vol 7(2)
Drafting and Negotiating Commercial Contracts (2016) 5th Ed Mark Anderson, Victor Warner