It can be easier than you think to enter into a binding contract.
This is something worth bearing in mind particularly with Europe’s leading exploration and production event, SPE Offshore Europe, just around the corner.
How do the numbers for the biennial conference and exhibition stack up?
More than 50,000 attendees
More than 1,000 suppliers on the exhibition floor
Hundreds of thousands of conversations taking place
Could any of those conversations unintentionally create a binding contract?
And what can you do to make sure you don’t fall into that trap?
What are the requirements of a binding contract?
There are only five key elements required to form a contract:
Offer
Acceptance
Consideration
Intention to create legal relations
Certainty of terms
Simple. Possibly too simple!
There is no requirement for a contract to be in writing: oral contracts are binding.
What is an oral contract?
So when could an oral contract be formed?
Example: Buying a bus ticket.
Passenger: “I would like to ride the bus to Aberdeen.”
Bus Driver: “That will be £5 please.”
Passenger pays £5 to the bus driver.
That’s an oral contract.
There was an “offer” (£5 to ride the bus to Aberdeen).
“Acceptance” (the Passenger making payment implies acceptance).
“Consideration” (£5).
“Intention to create legal relations” (passenger and bus driver intend to be bound by their obligations), and
“certainty of terms” (the passenger is to make payment of £5, and the bus driver is to drive the bus along a pre determined route to the destination).
Not one word has been written down, but a legally binding contract has been formed.
Could a binding oral contract be formed at Offshore Europe?
Is it possible for a legally binding contract to be created from a conversation between directors of two companies at Offshore Europe, albeit unintentionally?
Case Study
Director A of A Ltd and Director B of B Ltd are discussing A Ltd’s new winch design at an exhibition stand at OE.
Director B indicates B Ltd may be interested in acquiring some winches.
The quantity, price, and delivery date are discussed and agreed.
The pair swap business cards and Director B heads off toward another exhibition stand, never to contact Director A again.
To Director B’s shock, on the agreed delivery date, A Ltd delivers the agreed amount of winches to B Ltd and issues an invoice for the sale.
The difficulty for B Ltd is that all of the key elements of a binding contract appear to have been agreed. B Ltd would argue there was never an intention to create a legally binding contract.
However, the courts may follow precedent that in commercial situations the intention to create legal relations is presumed.
The difficulty for A Ltd is that it will have to prove the oral contract had been formed. Oral evidence can be contradicted by other oral evidence. The burden of proof is simply on the balance of probabilities.
Simply put, there will always be doubt when relying on oral evidence.
Nevertheless, the case study example could potentially be very expensive and unwelcome for both A Ltd and B Ltd both in terms of cost and management time.
Minimising the risk
If you’re having a conversation regarding the terms of a contract, say it is “subject to contract” (these words don’t guarantee protection, but can help). Make sure the other party is aware you do not intend to create a binding contract orally.
If in doubt, quickly follow up with an email making it clear you are considering the opportunity and will be in touch with a purchase order if you decide to proceed.
Performance of a contract may indicate acceptance of it. If the contract should be in writing, don’t perform any part of it until it is in writing.
Finally, do not rely on oral contracts yourself. Get it in writing. Any form of a written contract is better than nothing at all.
To find out more, drop by and see us at Stand 2C20.
