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It's easy to be put off by contracts. They're often long, boring and written in obscure language. And in the enthusiasm to do a deal, the terms of the agreement don't always get the attention they deserve. So it's important to understand what contracts are and why they're worth bothering with. If you know the risks you are running by not paying attention to contracts, then it will be much easier to motivate yourself to get to grips with the actual terms of the agreement.
This chapter also looks at the typical life cycle of a contract and gives you an overview of the other chapters covered in this book.
WHAT IS A CONTRACT ?
A contract is an agreement which creates certain legally binding rights and obligations. These rights and obligations can be enforced by a court.
For example, let's say you run a stationery supplies business. If you agree to sell a large consignment of envelopes to a shop, then you have a legal obligation to deliver the envelopes on time. The shop has a legal obligation to pay for them. If it refuses to pay, then you can go to court to demand payment. Equally, if you fail to deliver the envelopes on time and the shop needed them by a particular date, then it will have a right to withhold payment. It may even be able to claim damages for the late delivery.
No need for writing
Some people
think that all contracts need to be writing. In fact, it's perfectly
possible to have an oral agreement. For example, if you accept
an order from a customer over the telephone, it's quite possible
that a legally binding contract has come into existence - even
though there's no formal document that's been signed by both
sides. This could cause you problems if, for instance, you don't
have enough stock to fulfil the order. Legally, you may already
be obliged to give the customer what they have asked for and
you will be in breach of contract if you don't deliver on time.
Presumptions about business
agreements
It may be that
when you spoke to the customer over the telephone, you did not
intend that to be the final word on the matter. But unless you
made that clear in the course of your conversation, you could
find it difficult to persuade a court that there is no contract.
The court will start from the position that business people intend
to make legally binding agreements. Lawyers call this a "presumption".
Ignorance of the law is no
excuse
It may seem
unfair that a court will sometimes say that there is a contract
when in fact, you never intended to make a legally binding agreement.
But contract law is not really about fairness. The courts assume
that business people know what they are doing and can look out
for themselves. It's no use arguing that you didn't realise the
consequences of your actions - ignorance of the law is no excuse.
