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as preventative medicine. |
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 The Positive
Role of Contracts |
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as preventative medicine. |
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The Positive
Role of Contracts |
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The Positive Role of Contracts |
| One of the main problems in this field is the different expectations of the parties - a clear specification and contract can only help. Contracts are, quite simply, preventative medicine. | |
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| Try not to see the contract as something abstract which has little to do with the project itself and which should be put off until as late as possible in the negotiation process in case it gets in the way of "doing the deal". | |
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WHAT IS A CONTRACT? |
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WHAT IS A CONTRACT? |
| Quite simply, it is an agreement between 2 or more parties which is legally binding. | |
| Every day we make contracts of some sort, though we may not be conscious of it. There is a common misconception that contracts only come into existence if and when they are written down. This is not the case - there are very few contracts which Scots law absolutely requires to be in writing. | |
| Instead, many contracts come into existence by things that we say or do. If, for example, you flag down a taxi which has its yellow light on, get in and give instructions to the driver on where you want to go, then you have entered into a contract. It pays then to take care with your actions and words to ensure you or your business are not committed to contracts you do not wish to enter into. | |
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HOW ARE CONTRACTS FORMED? |
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HOW ARE CONTRACTS FORMED? |
| There are a few basics:- | |
| * they are formed by an offer and acceptance which shows consensus | |
| * there must be an intention to create legal relations | |
| * whether there is a contract is tested objectively | |
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| Looking at these issues in a little more detail, the following main principles emerge:- | |
| * Offer and acceptance | |
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In Scots law the process of making a contract is split into two parts: offer and acceptance. If you offer to sell a system to a customer for £5,000 and the customer accepts this offer, a contract has been formed. The essentials are that an offer is made which is accepted unconditionally. |
| * Offer and acceptance must match | |
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If you offer to sell a system and the customer agrees to purchase a different system, there is no contract - there must be a "meeting of minds" on the terms of the contract. |
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| * Objective interpretation | |
| Where a contract has been made, the law does not look at what you intended to say in the contract - intention is generally irrelevant. The law takes an objective look at the contract and considers it from the point of view of an independent 3rd party. The terms of the agreement will be determined from the contract itself, regardless of whether it is oral, in writing or whether it comes about through actions. Thus it is important to ensure that the contract accurately reflects the agreement which has been reached. | |
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Intention to Create Legal Relations |
| The parties must intend to create a legal relationship - a variety of scenarios are generally excluded e.g. social agreements. | |
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Usually no need for writing |
| As mentioned above, there are not many contracts which are required by law to be in writing. That said, many contracts are written down anyway for the obvious reason that this gives clarity to the terms and protects both parties' position. There is of course a balance to be struck - not every contract that you enter into will require to be individually negotiated. It does, however, make sense to have a standard set of terms and conditions for contracts that you enter into regularly. | |
| What is important is that what you say and what you do can have the effect of binding you to a contract even where the contract is unwritten. | |
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Offers are cancelled by counter-offers |
| If you offer to sell a system to a customer for £5,000 and it accepts the offer subject to the price being £4,500, that is in effect a new or 'counter-offer' which rejects your original offer. You may then agree to the price being £4,500 but on the condition that certain functions or hardware are excluded - this is a further counter-offer. The process may go backwards and forwards for some time but a contract is not made unless and until the parties reach full agreement on all the terms (when an unqualified acceptance is given by one of the parties). | |
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Offer must be intended to be binding |
| An offer is an expression of willingness to enter into a contract, made with the intention that the offer will become binding as and when it is unconditionally accepted by the person the offer is made to. The important thing here is to distinguish an offer from a mere advert or "invitation to treat". | |
| An invitation to treat is where someone invites another person to make an offer - for example, where shopkeepers display goods this is not generally an offer to sell but an invitation to treat, inviting customers into the shop to offer to purchase the goods displayed. | |
| Adverts and requests for tenders are generally regarded as invitations to treat. However, it all comes down to the facts and circumstances of each case - if you word adverts etc. in a way which indicates you intend to be bound by a response, they may be construed as offers. | |
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An offer must be communicated |
| The law requires that the offer must have been communicated by the person making the offer (the "offeror") to the person the offer is made to (the "offeree"). Thus if you leave a customer quote on your desk which the customer sees by chance and accepts, the acceptance is not binding on the basis that you had not yet taken steps to communicate it to the customer (you might have changed your mind or never intended it to be serious). | |
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Incorporation of conditions |
| If you wish to make a contract subject to conditions, then you must be able to show that these conditions were accepted by the other person before the contract was made or the conditions will not form part of the contract. The idea behind this is that it is unfair to impose terms which the offeree wasn't aware of when making the contract. It also reflects the requirement that both parties are in full agreement over the terms of the contract. | |
| This is not to say that you can't have conditions which leave some things open for agreement (e.g. a specification) when a binding contract is formed. | |
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An offer cannot be withdrawn after acceptance |
| After an offer has been accepted it cannot be withdrawn or, to put it another way, an offer remains open until unconditional acceptance is received and can be withdrawn at any time prior to acceptance. The withdrawal must reach the other person before they have accepted. | |
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Acceptance must be unqualified |
| As said earlier, if the purported acceptance contains new conditions or qualifications, then it is actually a counter-offer, and not an acceptance. A contract does not come into existence unless and until an unconditional acceptance is given. | |
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Silence is not acceptance |
| In general, a person has to communicate acceptance, orally or in writing, for a contract to be formed. Silence cannot generally be taken as acceptance. | |
| Many contracts require acceptance to be in a particular form, for example, by phone, letter or fax. If no mode of acceptance is specified, acceptance can generally be given in any competent manner. | |
| Remember... |
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Remember, conditions must be incorporated before the contract is agreed - putting conditions on the back of delivery notes/invoices is likely to be too late. |
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If no written contract is entered into, the matter becomes even more difficult. How do you show what was actually agreed? In the end, it all comes down to a question of proof and you will appreciate it is difficult (and often impossible) to prove that a restriction has been imposed verbally. |
| John Salmon... |
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