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Four common questions about forming contracts and enforcing them

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Contracts are legally enforceable agreements that bind all agreeing parties to the rights, and the obligations, contained therein.

The five key elements of enforceable contracts are:

  1. offer
  2. acceptance
  3. consideration (for example, payment)
  4. an intention to create legal relations
  5. certainty of terms.

Forming and negotiating contracts can be an assault course of tripping hazards and stumbling blocks before your feet even leave the starting line. Here, we outline common questions on forming contracts, and how the answers to each can help avoid potential disputes.

How should I accept a contract?

Gone are the days when a contract was cemented by a signature and a handshake. These days, contracts can be entered into in various ways, making it important for businesses and individuals to both recognise, and be clear, when a contractual offer is made.

As a rule, an offer is generally accepted – and is therefore binding – once it is communicated definitively and without qualification to the other party. The precise time at which a contract is entered into, however, depends largely upon the method used to communicate acceptance.

In-person acceptance these days is rare, with most offers being accepted via phone or email. Acceptance over the phone is relatively straightforward. As an instantaneous form of communication, a binding contract is formed when the acceptance is communicated and consequently received over the phone.

Acceptance via email is a little more complicated. While a perfectly valid way of communicating acceptance, it may create problems should a dispute arise regarding the precise time at which a contract is entered. As it stands, there is little guidance on this point, leaving it to be decided largely on a case-by-case basis.

For example, some guidance has suggested that contracts are deemed entered the moment the acceptance email arrives with the offeror’s internet service provider. Other views rely on the ‘Postal Rule’, whereby an acceptance is deemed effective the moment it is ‘sent’.

Whichever method of acceptance is chosen, it is best practice to agree the form of, and timeline for, acceptance in advance. Parties may, for example, agree that acceptance via email is only valid once it has been acknowledged by the offeror.

Should I set out terms and conditions expressly when making an offer?

To be enforceable, any terms and conditions that the offeror wants to rely on must be incorporated prior to the contract being made. As we will discuss in the next point, the onus is on the person receiving the offer (often known as the ‘offeree’) to ensure they have read and understood any terms and conditions. It is the offeror’s responsibility, however, to ensure these terms are highlighted in correspondence, readily accessible, and easily understood. An offeror must demonstrate that they have given the offeree a reasonable opportunity to read the terms of an offer and, where necessary, negotiate changes.

What a reasonable opportunity looks like will vary depending on industry practice. For example, it may be standard for terms and conditions to be attached to emails when discussing potential contracts, or for terms of use to be included via a link at the end of a document. So long as an offeror can prove that this is common and expected practice, then they are more likely to demonstrate reasonable opportunity.

This approach, however, is best kept for parties that have been dealing with each other for extended periods of time. In new relationships, it is important to highlight where the terms of an offer can be found and give sufficient time for the other party to read them.

Should I ensure an offeree has read my terms?

Providing an offeror has given the offeree a reasonable opportunity to read the terms, it is the offeree’s responsibility to read those terms before accepting an offer and entering a contract. Unless any terms turn out to be fraudulent or misleading, claiming ignorance of certain terms during a dispute will not carry weight if the other side is able to demonstrate reasonable opportunity and prove that no changes or amends were made to an offer’s terms once a contract was entered into.

There is, however, a responsibility on the part of the offeror to draw the offeree’s attention to any terms that are particularly unusual or onerous. This may also include significant changes to longstanding contracts, such as price increases or the cessation of specific service lines. Be warned: the courts do not look favourably on tucking away contentious terms within the body of standard terms and conditions.

If I don’t like an offer, can I just ignore it?

In most cases, silence can be equated to rejection of an offer. This follows the requirement for acceptance to be explicit, without qualification, and in response to an offer for a subsequent contract to be binding and enforceable.

While it is not always necessary to proactively communicate rejection, there are instances in which silence can be considered acceptance, particularly where long-term contractual relationships are concerned. Continuing business as usual without complaint or comment is one way in which a contract can be considered binding, without communicating an agreement of an offer or its terms.

If, for example, an offer is made for delivery of goods, and such goods are accepted upon delivery, this will be considered ‘acceptance by conduct’ and could lead to the offeree being bound by the offeror’s terms.

To avoid future disputes, therefore, it is important that both parties are clear on the actions that denote acceptance of an offer. This could be either by requiring acceptance to be explicitly given within a certain timeframe, or by avoiding accepting goods or visiting sites until the terms of an offer have been fully agreed to the satisfaction of both sides.

This article was co-written by Lucy Collins.

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