Law of ContractThe law of contract in the UK is a set of elements that a contract must contain in order for it to be legally binding. The contract elements are often known as:

  • Offer and acceptance;
  • Intention between parties to create relations;
  • Considerations for promises;
  • Legal capacity of actions;
  • Genuine consent of competent parties;
  • Legality of the subject matter of the agreement

More detail about Law of Contract

Consideration must have some economic value for validity in a contract. These come in forms of mutual obligations or promises within contracts.  So these are not voluntary acts but formally agreed clauses of which the parties agree.  Thus tipping a taxi driver is not consideration but upon completion of a journey paying the fare is.  His consideration was to courier you to the destination and yours was to pay him.  If neither performs his considerations then the contract is unenforceable.

Past consideration is not valid, (previously performed promises of economical value).  Unless, according to The Bills of Exchange Act 1882, previous debt is outstanding.  Another form of exception comes in Lampleigh v Braitwat whereby remuneration is expected by course of business.  There are often incidents of common law amongst other governing law that support business to business transaction of the basis of goodwill.

Thus as also in private (customer – business) incidences, the dependency on signatures among other formalities are no longer required. This is also due to the internet and contracts being signed online with the click of a mouse.

Also ‘Gentlemen’s agreements’ do have some standing also.  ‘Gentlemen’s agreements’ are agreements made in person or on the telephone which through goodwill and continued course of dealing means that not all contracts need to be in writing (business to business most commonly). It is best practice however to have an orally \agreed contract documented as interpretations, misunderstanding and forgetfulness can come into play if just left verbally agreed.  As in all law evidence is key in proving liability of a guilty party.

Contracts containing certain intellectual property rights, exclusive licensing and land sales, leases transfers, need to be in writing.  Also any contract including a guarantor under a guarantee need be in writing also.

Gentleman’s agreements as mentioned above would be valid only if an authorized person, of a suitable capacity were the ones agreeing to a contract.  This is also evident in business to business transactions written also.  So a personal assistant agrees a contract over the telephone and/or fax or email.  This is not deemed a sufficient title to be able to act on behalf of a company.  Thus the director, authorised senior manager or lawyer of such a company would only be deemed valid. In the case of a small company only the owner of a sole trader would be able to agree a contract in any capacity.

Furthermore the company name must be written and displayed correctly and adequately on all documentation of a contract including invoices or any significant communication correspondence between parties, including emails.  In displaying what kind of company too is important such as private limited company ‘ltd’ or plc public limited company whereby equitable liabilities differ hugely.  If the mistake was made by a person within the company they could be found personally liable.  Local authorities need have seals too to ensure validity and in the case of a ltd company the board of directors’ signatures would ensure 100% authority.

More so, outside of business capacity more broadly is a requirement of a contract thus a minor cannot enter a contract albeit under the age of 18.  Also mentally disabled people or clinically diagnosed persons whom are mentally ill do not meet the requirements of a person who can enter into a contract privately and or otherwise.   Also if an alcoholic enters into a contract under due consumption or drugs then they are also deemed void contracts if proved.


See also: Legally Binding Contract Terms