November 2012 - When does a business contract become legally binding?


Business Law Update
November 2012

  Home   |  Ask a Lawyer  |  Contact Us
from Cousins Business Law
Find us on
You’ve negotiated the deal. Now how do you make sure your business can rely on the contract?

There are a few cases where a special form of document or wording is required to make the agreement enforceable such as transfers of property and other instances where the contract has to be made as a deed, but those are matters where you are likely to be using a lawyer to advise you. In other cases the contract can become legally binding much more easily.

In my view the most reliable way is to set out the agreed terms clearly and comprehensively in writing and for both parties to sign and date. Such a signed document will provide good evidence of both the existence of the legally binding business contract and the terms which have been agreed. Giving that degree of certainty has to be a satisfactory way to conduct the trading relationship with your customers, clients and suppliers.

Having said that, again with a few exceptions such as assignments of intellectual property, most business contracts need not even be in writing for the terms to be legally binding. Unlike some old wives tales, that means that the old saying ‘my word is my bond’ can in fact be true. Provided all the basic elements of a contract are present, a legally binding agreement can be formed by the parties agreeing to the terms verbally. The same applies to an informal exchange of emails, letters, faxes or any combination of those and verbal agreement.

Those informal methods can have the obvious advantage of being a quick way of achieving a legally binding business contract, but there are clear disadvantages of potential uncertainty as to exactly what has been agreed and proof, particularly in the case of unwritten agreements. Difficulties can arise when one party still wants to negotiate further details of the deal, but so far as the other is concerned the deal has been concluded.

This can also happen where heads of terms or some form of outline agreement or bullet points have been produced. One or both parties may intend to flesh this out into a fuller form of agreement rather than relying only on the initial document. Often events can overtake them and they start work before the details have been agreed. In those circumstances the businesses concerned might well find that by their actions they have entered into a legally binding business contract. If so, the precise terms of that contract are likely to be unclear – potentially some combination of the original heads of terms, discussions, exchanges of emails or other correspondence and what has happened in practice.

If you have not yet finalised the terms you are discussing then make sure you do not become legally bound before you are ready to agree. For certainty as to the terms agreed and under which your business will operate for any particular supply or purchase whether of products or services, I would recommend that the terms be set out clearly in writing before you enter into a legally binding business contract. For assistance drawing up a suitable agreement, please contact me.

Sue Mann

Business Contracts Solicitor, Birmingham
Blogs in Brief
You’ve talked things through with your customer or supplier and agreed the deal in principle. Now they’ve presented you with a written agr...more
With commercial property development in the doldrums the last thing you want on the development projects you do have going forward is to experience pr...more
What would be your reply to the following questions? • Does your business use business contract documents and procedures that were specifically d...more

The Cousins Business Law Team

Gary Cousins
Sue Mann
Nigel Musgrove
Steve Petty
Gary Cousins Dispute Resolution Solicitor

Read Blog
Sue Mann Commercial Solicitor
Read Blog
Nigel Musgrove Licensing & Dispute Management Solicitor
Read Blog
Steve Petty Commercial Property Solicitor
Read Blog

Cousins logo

Cousins Business Law is authorised and regulated by the Solicitors Regulation Authority under number 485128. Head Office: Swan House PO Box 11543, Birmingham, B13 0ZL. Tel +44 (0)121 778 3212. Fax: +44(0)121 275 6155