The root of most problems with contracts is caused by common


formation problems. Contracts and law govern and fundamentally affect the operation and functioning of businesses. As such, businesses and their personnel should be aware of and understand the formation of contracts and their key elements that will affect the relationship and liabilities to their clients.


First you have to ascertain if a binding contract (a binding agreement) actually exists. Secondly, if so, what terms have been incorporated into the contract.


This article “dips” into the arena of forming contracts.


It is not meant to be a


comprehensive overview of contract law, which is highly complex, it merely seeks to summarise the fundamental elements of a contract which a business should consider when contracting with other entities.


Offer


1. An offer is a promise by one party to enter into a contract with another party.


2. An offer must be (a) specific (i.e. unambiguous/unequivocal); (b) complete; (c) capable of acceptance; and (d) made with intention of being bound by acceptance.


3. An invitation to treat is not an offer. An example of this is a shop window. If you are not dealing on your own standard terms, it may be beneficial to send an invitation to treat and wait for the other party to return with an offer. This then gives you the


102 | The Report • September 2020 ember 2020 •• Issue 93 Issue 93


discretion and flexibility in accepting or rejecting that offer.


4. An option is to send out all correspondence marked “subject to contract”, until you wish to form a binding contract. This clarifies that communications are invitations to treat and avoids you potentially being bound to the other party inadvertently.


5. Check that your standard terms are included in your contracting procedures and ensure those staff forming contracts understand how to ensure to include your terms and conditions in a contract.


Acceptance


1. Acceptance is a final and unqualified assent to an offer.


2. It must be communicated to the offeror to be effective, however, conduct can sometimes constitute acceptance.


3. Do not forget that contracts can be made by email/orally and they do not have to be formal written documents; and you can modify contracts also in this way by intention or accident. So, the rule is “use informal communications with caution!”


By Karen Brain


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