7d • General discussion
When is an agreement legally binding?.With reasons to terminate....
We all make binding contracts as part of our daily lives and you may be wondering what the effect of a binding contract is and if you can get out of it.....
Consumers have a lot more protection from unfair terms and in particular if you conclude a contract "at a distance", so online, you usually have a cooling off period to simply change your mind with no penalty. Some goods and services are exempt (e.g. perishable goods, holidays on particular dates, etc).
It is a huge topic so the following is a general overview.....
A contract is legally binding when five core elements are present.
- Offer
A clear and definite promise to be bound on specific terms, capable of acceptance. It must be distinguished from an invitation to treat, such as goods displayed in a shop window.
2. Acceptance
An unqualified agreement to the exact terms of the offer. It must mirror the offer and be communicated. A counter-offer destroys the original offer.
3.Consideration
Each party must provide something of value. It does not have to be adequate, but it must be sufficient in law. Past consideration will not usually suffice.
4.Intention to create legal relations
In commercial agreements there is a strong presumption of legal intention. The parties should agree that the contract can be subject to legal action if one or the other breaches the terms....an example is bidding on an auction site - when you place a bid, you agree to enter in to a binding agreement if you win
Certainty of terms
The agreement must be sufficiently clear and complete. If essential terms are vague or incomplete, the contract may fail.
Capacity and legality
The parties must have legal capacity, and the contract’s subject matter must be lawful. Everyone is presumed to retain mental capacity until a medical expert can say otherwise....an example is a Will and the person who makes the will must have mental capacity, if not then the will can be considered void. Similarly, the agreement must be legal - so if the transaction is illegal (e.g. someone buying drugs or illegal weapons) then you have no recourse if it goes wrong.
> Grounds to terminate or set aside a contract :
- Misrepresentation
A false statement of existing fact that induces the contract. It may be fraudulent, negligent or innocent. The usual remedy is rescission, and damages may also be available depending on the type. E.g. a car dealer sells you a car telling you it has no accident history (when it was previously an insurance write-off).
- Breach of contract
A failure to perform contractual obligations. A repudiatory breach allows the innocent party to terminate and claim damages. The breach should be sufficiently serious to justify a full termination (e.g. a holiday operator cancels and refuses to let you book another trip).
- Duress
Where one party is pressured into the contract by illegitimate threats. This makes the contract voidable. Such as being made to sign or you will come to some harm.
- Undue influence
Improper pressure or influence, often arising in relationships of trust and confidence. The contract is voidable.
- Mistake
A fundamental mistake may render a contract void, though the threshold is high. Such as you see a car being advertised online for $10 when it should be £10,000 (the mistake is clearly wrong and the dealer should not be penalised).
- Lack of mental capacity
If a party lacks the mental capacity to understand the nature of the transaction, the contract may be voidable. A party is presumed to retain capacity until a doctor / medic can say otherwise though....
- Illegality
If the contract involves unlawful conduct, it may be void and unenforceable. Such as a supply of illegal drugs, or weapons for example.
> Common remedies.....
Rescission
Sets the contract aside and attempts to restore both parties to their pre-contract position.
Damages
Financial compensation to put the innocent party in the position they would have been in had the contract been properly performed. If negligence was also involved, further damages may be claimable too.
Specific performance
A court order requiring the breaching party to perform their contractual obligations. This is discretionary and typically used where damages are inadequate, such as in land transactions.
Injunction
An order restraining a party from acting in breach of contract.
Quantum meruit
A claim for reasonable payment for work done where a contract has been partially performed or is unenforceable. E.g. a builder carries out substantial works to a property - they may be entitled to payment for a reasonable amount of work...
Notes:....
Deeds are another type of agreement but more iron-clad and are generally witnessed when they are signed. The limitation period (the time involved) to sue for breach of contract is generally longer than for a basic contract....
Business to business contracts are far more difficult to get out of - the courts expect businesses to know the terms they are signing up to. However, fairness still comes in to this, as does misrepresentation and other wrongdoing.....
Guarantors can be involved in a contract - such as for property rental, if you cannot rent a property then a guarantor can be used. The Guarantor effectively insures the payments if the main contracting party cannot pay (and they risk being sued if they refuse to pay).
Any material changes in terms (such as for your employment) would need to be agreed by both parties (employer and employee), such as your place of work or your role.
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When is an agreement legally binding?.With reasons to terminate....
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