English Contract Law (ECL) applies in all common law jurisdictions and this guide is designed as a beginners guide. Contract law is also subject to change as it evolves through time, legal judgements, and predominantly European Union Directives which are ratified into UK legislation.
In simple terms it is a set of promises made between two or more parties to fulfil specific tasks or functions or to supply goods or services within specific criteria laid down within a set of terms and conditions. Contract law is derived from something called lex mercatoria which also forms the basis of European Contract Law called European Contract Protocols which is abbreviated to ECP and ECP is based upon English Contract Law.
ECL lays down a very broad criteria or freedom to enter a contract and the freedom to enter a contract is paramount to the effective working of ECL as it ensures fairness and prevents people being forced into contracts against their will, or by any form of pressure which is not true consent.
Agreements are a set of promises made between two or more parties but unlike a contract they are not subject to “a consideration”, a contract is subject to a consideration; but where an agreement is legally enforced it becomes a contract and is bound by contract law. A consideration is something of value which must be bought to a contract and is not to be confused with “consideration” which is a period of time allowed after an offer of a contract has been made to consider the terms and conditions on offer.
All contracts can be negotiated and this means that if there is a term or condition you don’t like then you negotiate it or renegotiate it or exclude it all together and this applies to any contract.
For a contract to be valid it must be entered into freely and without any threats, harassment, or distress to create something called true consent or a meeting of the minds, only when true consent is given does a contract become valid. ECL and ECP place great emphasis on true consent and fairness, along with the English courts as, until someone truly consents there can be no valid contract.
Good faith is something which has great emphasis placed upon it in ECL and ECP and also within many other forms of contract legislation such as UNIDROIT or UCC (universal commercial code) and a number of other forms of legislation throughout the world. Nobody can limit their responsibilities under fair dealing and good faith and it applies to every party forming a contract, and where an individual party is made up of several members every individual within that party is bound.
Contract formation consists of three main elements and these are, OFFER, CONSIDERATION AND ACCEPTANCE/REFUSAL of a contract. When an offer of a contract is made the offeror makes an offer to another/other parties, the offeree/s and they have a period of time of consideration which is basically time to study the contract or to obtain legal/specialist advice. Under ECL this time is set to a minimum of 72 hours or 3 days as the UK has a nominal 5 day working week and any less time would mean any solicitor or expert adviser may have two days off over a weekend and could not advise accordingly. Longer times for consideration can be used if mutual assent allows this, so there is no maximum time for consideration if both/all parties agree to a longer time or by a certain time and date longer than 3 days.
Following the period of consideration both/all parties can enter the contract negotiation stage having sought legal/expert advice and negotiate any major terms and conditions and individual conditions to try to reach agreement on those conditions. If they can reach agreement they can accept the contract, hence acceptance, or rejection of the offer of a contract.
Offers can be made in numerous ways, the normal way is in written form and delivered by post, but an offer can be made orally/verbally, or by an accepted medium such as facsimile (fax) and electronically using mediums such as E-mail.
Recording a contract may be difficult and the best way of recording a contract is in writing as it is irrefutable and cannot be disputed, both/all parties have a copy of the contract so more than one written copy exists and these can be checked against each other if a dispute arises. Fax is a true copy of the original document which cannot be tampered with during transmission and printing by the recipient and is good as an original. Where things are done electronically (other than fax) it still requires the consent of both parties to operate their systems electronically, and this would normally be with a written contract of consent.
Most business offers of a contract are still made and recorded in writing, but when is the offer deemed to have been made? In contract law of most jurisdictions an offer is considered as being made when the offer is posted for the mail service to deliver it.
Where there is a verbal contract made it comes down to the word of one against another even if one party has recorded the verbal contract by writing down their version of events, so avoid them and get a properly written offer of a contract.
Contract negotiations can be very long and protracted, or very simple with just adjustment to some terms and conditions, when a counteroffer is made to an offer the contract the offeror makes is automatically deemed a rejection of the original offer. This is because the parties cannot agree on some minor points; or some very complex points, in either case there is no meeting of the minds and a contract cannot be formed. Such issues also arise when there is a change in circumstances and one party cannot fulfil their part of the contract and have to renegotiate a contract and other parties try to take advantage of such circumstances.
If you cannot get mutual assent or “a meeting of the minds” then don’t form a contract
Acceptance is the most complex area of contract law as there are many ways to enter a contract and many people are unaware of this and blindly enter a contract without even knowing they have. You can enter a contract by mutual assent (a meeting of the minds) conditional acceptance, implied acceptance or acceptance by action or actions.
Where an offer of a contract is made by the offeror and the offeree accepts the offer it is called a “mirror image rule” as the original offer is accepted in its original form, the mirror image contracts usually come from large organisations to members of the public.
Conditional acceptance is where “in principal you agree to the contract” but you add conditions which must be met by the offeror before you will sign the contract, until these conditions are met then no contract exists, but you show assent to the contract when they have been met.
If the seller fits new tyres to the car and services it then they have met the conditions as laid down in the conditional acceptance, now these conditions have been met they have fulfilled their part of the obligation (the conditions) and the seller has to buy the car.
Implied acceptance is when you suggest you have reached agreement but have not done so expressly and this is another tactic used by unscrupulous organisations to trap people into contracts. You negotiate a contract and refuse to sign it, or you negotiate and break off negotiations and fail to formally refuse their offer of a contract, by failing to refuse or rebut they can deem they have an implied contract as you have failed to rebut the contract in full.
Acceptance by actions is another way to enter a contract and this works very simply on your actions, if a new contract is offered and you take the 72 hours consideration period and act under the conditions of the new contract offered then you have entered a contract by action.
It is crucial to remember one very important point:
Only the terms and conditions in force at the time of signing the contract apply to that contract.
Retrospective and Unilaterally applied
Retrospectively applied legislation is where a party tries to apply new or updated conditions to your older existing contract which don’t actually apply, but may apply to a newer contract with newer, different, or updated terms and conditions without your consent. Many organisations try to do this by misrepresentation and use the old adage “the law has changed” and assume you will comply with the conditions they are trying to retrospectively apply to your contract. If you comply they have you “by actions” (as above) because you have acted under the terms of the retrospectively applied (newer) conditions. Retrospectively works in conjunction with unilaterally and unilaterally is where one party tries to impose such conditions by their own volition upon another party/s without their consent. Remember:
Only the terms and conditions in force at the time of signing the contract apply to that contract.
Nobody can retrospectively or unilaterally apply conditions to any contract in force unless you consent to them by signing a new contract containing the newer terms and conditions, or signing a “variation” or “variation to contract” to include the newer terms and conditions.
Other forms of unilaterally applied contracts do exist and do apply, if you lose a family pet and put up posters with a picture of your pet and offer a reward of £50 for the safe return of the pet then this is deemed a unilateral contract. This is because someone not specifically looking for your lost pet may see your posters and find your pet and contact you if they find it, you set the terms and conditions of the reward and by them returning it safely to you they are entitled to the reward you offered. This is because the finder can be anyone and not a specific party, therefore no bilateral contract with specifically defined parties is made as there are none, as there are no specifically defined parties there can be no meeting of the minds and no bilateral or multilateral contract, only a unilateral contract.
These are becoming very popular contract types as they were designed right from the outset to deceive people through careful wording, they do breach most of the fair dealing rules and many others; but until a successful legal challenge is made to them they remain legal. Most of these forms of contract offers are offers made under the civil system and apply to offers made from civil enforcement officers employed by both the police and local authorities for “penalties” as opposed to fines. Only a court can impose a fine and no other body can impose them so they formed a doctrine of “penalty charges” to prevent accusations of “impersonating a court” or “impersonating a judge or magistrate” as these are criminal offences. Such contracts offers introduce two other factors which are the imposition of a prescribed time for response and the prescribed form of response both of which are perfectly valid and legal, but again it’s how they word them which is crucial to understand.
We can conclude that “action” is where you enter a contract freely and acceptance is by filling in the offer of contract in the manner they require and sign it, basically it is a form of compliance.
Therefore you can be trapped into a contract by either action or inaction very easily. Only one form of defence exists and this is “ failure to communicate an offer” which is where the offeror makes the offer of a contract and the offeree fails to receive it. The only way this would happen is if they post out the offer of a contract (PCN) and the recipient never receives it as it may have been damaged in the postal system and they cannot read the address, or they lose the offer letter in the postal system. In either case, once a letter is posted it is accepted that “an offer of a contract” is made; at the time it is posted and it is up to the offeree (recipient) to prove they never received it. If someone never receives such an offer (PCN) and they never receive it then the offeror will follow this up with further correspondence and this will prove they have contacted you if you respond to this correspondence. Normally they will get round this by sending another PCN out by registered post so you have to sign for it which gives the offeror proof the offeree has received it.
In such cases you have to respond, remember they say you have to respond as this is a conditional offer and the trick is to respond in such a way that you avoid accepting their offer and it has to be done within their specified time.
Many other elements exist and these are set in contract law or by other defined legislation called statute legislation which can affect who is made an offer of contract, what that offer may contain, or additional conditions such as warranty periods.
Many defences exist to avoid a contract, even if it signed and the parties, or one of the parties tries to enforce the contract, these are:
Reasonableness comes into play with contract defences and it is determined mainly by the accessibility to the information by both or all parties to a contract. It would be reasonable to expect a Government official entering into contracts with the public to have at least a fundamental understanding of contract law. It would also be reasonable, and a contractual obligation to take account of an individual’s ability and experience when dealing with contracts. Where the official uses their position, and that of a weakened or inexperienced party in contractual negotiations it would constitute “ excessive advantage” as they haven’t taken into account the weaker or inexperienced party/s lack of negotiating experience. Where the courts intervene they use a test called “reasonableness” and it is based upon the common law principle; that, of what an average person would do in those specific circumstances if they were in full possession of the full facts. Courts also take into account “ reasonable accessibility” to contractual terms and conditions and how accessible these are to both/all parties, and whether someone should reasonably know them, and the cost to a party of obtaining them.
Contractual terms and conditions must be made known to both/all parties before a contract is formed and this applies to all contract types including “parol” contracts which are verbal contracts. Any failure to communicate the major terms and conditions of any contractual agreement means the contract is void, but there are implied terms and implied terms can come from a number of sources.
Terms implied in law are those deriving from statute law and are express terms, for example any standardised form of other legislation, such as the sale of goods act, employment legislation, or consumer protection (distance selling) regulations would apply to that contract. Therefore these are implied terms as this statute legislation is binding in its own right.
Implied terms may also come from other sources such as standards and protocols of industries, or adopted informal standards that industry applies to itself and everyone operating within the industry as voluntary obligations. If a company designed, built and erected a steel framed building and each section contained four bolt holes at each connection of 23mm diameter we would have an implied term. In engineering the standard sized hole for a standard M20 bolt is 20mm + 3mm tolerance which would equate to a 23mm diameter hole. This would imply a contractual term through the engineering standard so each connection must contain four x 20mm diameter bolts.
Avoiding a contract is called “recession” as the contract is rescinded and we need to understand contract law to know why and how to rescind a contract, when a contract is rescinded it is termed as “set aside” and this can be done in several ways.Contracts may be:
Misrepresentation is where one party makes a misleading statement to another party and knows the statement is misleading, or should know the statement is misleading, and this entices another party into forming a contract they wouldn’t have entered if they knew the true facts.
Fraud in the factum determines whether the party alleging misrepresentation knew or knows they are entering a contract or creating a contract, if they didn’t know they were entering a contract then there would be no meeting of the minds and no contract, its void.
Fraud in Inducement focuses on more on misrepresentation and if that misrepresentation forced another party into forming a contract they wouldn’t form if they were in possession of the correct material facts.
Duress and Undue Influence – duress is defined as a threat of harm, originally it was defined as physical harm to force someone to do something against their will; but now it focuses on any type of harm and now includes loss.
Undue influence is where someone in an official position of power uses or abuses that position of power to force someone into a contract they don’t want to enter and it focuses on whether there is a relationship of trust and confidence. Such conditions exist between civil servants and the public, solicitors and their clients and even parents and children under the age of majority.
Lord Denning set a legal precedent when he said:
“Opinion is mere puff, nobody can unilaterally or retrospectively apply legislation as only the contractual obligations contained in the contract, and the terms and conditions at the time of signing the contract apply”.
Enjoy the game and have fun!