As a business owner, you’ll come across commercial contracts in every aspect of your work. However, navigating and negotiating, let alone understanding, commercial contract law can sometimes seem impossible. 360 Business Law is here to help. In this quick and easy guide, we’ll give you a basic picture of everything you need to know about commercial contracts.
And if you need advice on contracts, get in touch with us to get access to our first-class legal services.
A commercial contract is a legal agreement between businesses.
You will also see commercial contracts referred to as Business to Business (B2B) Agreements.
For a commercial contract to be valid and enforceable, it must fulfill four key elements. Those are: agreement, capacity, consideration, and intention to create legal relations.
Agreement covers the two stages of offer and acceptance.
An offer is an expression by one party to another of willingness to be contractually bound on certain terms.
Importantly, an ‘invitation to treat’ is not the same as an offer. An invitation to treat simply invites the offeree to make an offer but is not contractually binding.
Acceptance must be an unqualified and unconditional agreement to the terms of that offer and must be communicated to the offeror.
If the offeree responds with negotiated terms, this constitutes a counter-offer, not acceptance.
Capacity means all contracting parties must be capable of understanding the terms and obligations of the contract. They must also be able to give their free consent to the contract.
For a contract to be binding, the contracting parties must exchange some value. Note that the consideration does not have to be adequate, but it must be sufficient.
For a contract to be enforceable, there must have been an intention to create legal relations. This means both parties wanted to enter into a legally binding contract.
In the context of commercial contracts, there is a presumption that the parties intended to enter into the contract.
Under commercial contract law in the U.K., there is no legal requirement for a commercial contract to be in writing. That is to say, a commercial contract in the U.K. can be verbal, implied, or written.
All three types are legally binding (if they fulfill certain criteria). However, our commercial solicitors will always recommend that your commercial contract is in writing. This reduces the risk of misunderstandings or disputes, as it is easy to evidence what has been agreed.
Under U.K. commercial contract law, parties are mostly free to contract on whatever terms they like. However, U.K. statute does govern certain types of contracts by implying terms into them.
As a result, in B2B contracts, you must consider terms implied by the Sale of Goods Act 1979 , the Supply of Goods and Services Act 1982, and the Unfair Contracts Terms Act 1977.
Applies to contracts of sale of goods. This is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration.
Applies to contracts for both goods and services. The SGSA 1982 implies similar terms to the SGA 1979, in addition to the following:
The Unfair Contracts Terms Act applies to transactions between businesses. However, it only applies to contracts on written standard terms of business (s.3(1)), not to bespoke, negotiated contracts. It governs clauses that seek to limit or exclude liability in B2B contracts.
Under U.K. commercial contract law it is possible to exclude an implied term in B2B contracts as long as the exclusion clause satisfies the reasonableness test, as laid down by the UCTA 1977.
Under Schedule 2 of the UCTA, the guidelines that help to determine ‘reasonableness’ are:
If you’re dealing commercially with a third-party business, whether that’s in the purchase or sale of products or services, you need a commercial contract.
A water-tight commercial contract is critical. A good contract will help to:
There are many different types of commercial contracts in the U.K. Here is a small selection of examples:
Commercial contracts should always be in writing to capture what the parties have agreed. This will include details such as:
Using a standard ‘off-the-shelf’ commercial contract can seem like an easy option. Especially since there is an abundance of sample contracts that can be downloaded from the internet. However, it really is worth investing in contracts that are specific to you. Generic documents are unlikely to be tailored to your particular needs and context and can miss out key provisions and protections.
Here at 360 Business Law, our first-class lawyers offer the best commercial and contract advice. They will guide you through the process of drafting a bespoke template commercial contract to suit your needs.
We are also very aware that some customers will insist on pushing their contract terms onto you and these are often ‘not suitable’ to the products/services you are offering. We will assist you with amending and negotiating such terms.
Our qualified commercial solicitors can:
In addition, it’s worth noting that you may go through several stages of re-drafts and negotiations before you are able to finalize the contract. It’s is not unusual for your customer to involve their legal department or an external lawyer in this process.
A poorly worded, ambiguous, or weak commercial contract can seriously undermine your business. It can also leave you vulnerable to liability – that’s why a thoroughly drafted commercial contract is so valuable.
Although all business contracts will differ slightly, there are some elements that are absolutely key to commercial contracts in the U.K.
There is also a common custom and practice in commercial contracts of including the following:
You may come across the phrase ‘good faith’ in your commercial contract, but what does that actually mean? The meaning of ‘good faith’ has developed through case law and heavily depends on context. Good faith can refer to:
The test for giving meaning to ‘good faith’ was laid out in Mid Essex Hospital Services. It asks: ‘would the conduct of the parties be seen as commercially unacceptable by reasonable and honest people?’.
To ‘get out of a B2B contract’, you would need to terminate the contract. You might want to do this if:
When you terminate a contract, it is discharged, so any future primary obligations owed by the contracting parties fall away.
At common law, the following three reasons would justify termination of contract:
For instance, commercial contracts also often include express termination clauses. These specifically provide for termination in certain contexts. For example, an ‘event of default’ is an event specified in a commercial agreement that gives the non-defaulting party the right, amongst other things, to terminate the agreement.
A commercial contract can last as long as the parties want. There a four different types of duration for a commercial contract:
Consult your 360 Business Law solicitor. They will help you understand the nature of the dispute, gather evidence, and negotiate a resolution.
The ‘battle of the forms’ is where two businesses are in the process of negotiating the terms of a contract, and both want the contract to be on their own terms.
To sum up, the ‘battle of the forms’ is ‘won’ by the party that ‘fires the last shot’. That party will put forward their terms and conditions last, without receiving an explicit repudiation.
In conclusion, ensuring your commercial contracts are robust and serving your business’ best interests is absolutely critical. Therefore, having the guidance of a first-class solicitor is always advisable. This is the case even if you have a good grasp of commercial and contract law.
Lastly, here at 360 Business Law, we ensure that your commercial transactions are easy and affordable. Our innovative subscription legal services models means that you can access unlimited legal services. That includes in the U.K. and abroad, all for a fixed monthly fee.
Get in touch to learn more about how to instruct one of our lawyers.
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