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Legal Reminder: Always read the small print!

How to avoid getting into a tricky situation with binding contracts...

Sales people always seem to pick your busiest time to discuss their product or a service; the finer details are glossed over and before you know it you have inadvertently signed up to a two or three year rolling agreement!

When you enter into a contract with another business, many presumed legal rights do not apply. In general, contract law gives parties the freedom to agree whatever terms they choose. Consumers have added protection, however these do not generally apply to contracts between businesses. It will also be presumed that a business owner has read what they have signed so unless duress, misrepresentation or undue influence can be proved, the mere fact that it was a poor bargain will not be a persuasive argument to the court to end an onerous agreement.

Whilst a compelling argument in some cases; the lack of a written contract is not an automatic defence to enable a swift exit from a bad contract. If you verbally agree to enter into a contract for either goods or services, and the other party relies upon this agreement and then starts to perform the contract, it can still be enforceable. It is important to make your intentions clear from the outset, so if you are not convinced that you want the product or service then communicate this decision either in a letter or an email as soon as possible.

The right to cancel a contract entered into over the telephone or via the internet cannot be relied upon either.  The Consumer Protection (Distance Selling) Regulations 2000 has a very particular definition as to the meaning of ‘consumer’ which effectively excludes businesses, so it is imprudent to assume that any telephone or internet based contract can automatically be cancelled.

Whilst this and other presumed rights may not be available, there are still are other legal options that can be considered by the canny business person, such as:

1) The Sale of Goods Act 1979 regarding implied terms as to fitness for purpose will apply to business to business contracts. If an item is defective then the other supplier will be in breach of contract.

2) The Supply of Goods and Services Act 1982 implying terms that work must be undertaken to a satisfactory standard.

3) If a term is onerous then the Unfair Contractual Terms Act 1977 may apply. This is used to challenge contracts which are attempting to unreasonably exclude or limit liability. The rules are complex and advice should be sought as the suitability of the argument will depend upon the individual facts of each cas

Once in a contract it is possible to terminate the agreement if:

1) The agreement allows for it.

2) There is a material breach of the terms. Whether the breach is sufficiently severe to allow this argument is a question of evidence. If this cannot be proven then there may be a claim in damages instead.

3) There may be common law termination rights such as renunciation – where one party indicates they will not perform the contract; impossibility - these rare situations where the other party puts themselves in such a position that they cannot perform the contract, or finally, the most common argument of either total or partial failure of the contract.

So, what can business owners do to protect themselves?

1) If you are merely interested in the goods or services, make your position very clear and confirm that intent in writing, either by post or email.

2) Don’t presume you can agree to a contract and then cancel it later, particularly if that discussion is over the telephone or via the internet. Ask to see a copy of the terms and conditions in advance and take the time to read through them carefully before committing.

3) For contracts that supply a service it is important to ensure that the details of that service are clearly defined.

4) Remember a business is deemed to have agreed and accepted whatever its representative signed, so be on the lookout for rolling renewal clauses and clauses seeking to limit liability or exclude rights. If there is a rolling renewal clause and there is no room for negotiation, then ensure that the cancellation date is not overlooked.

5) Have a clearly written staff policy indicating which of your employees are authorised to enter into contracts with third parties. Ensure that your staff are all aware of the need to read a delivery note, invoice or agreement if they are asked to sign one in the owner’s absence. 


For free help and advice on this or any other HR issue you can call the free BII HR Helpline