A Legally Binding Contract That You Didn't Mean to Enter?
The old adage 'Be careful what you wish for' is often credited as coming from The Tale of the Monkey's Paw by W.W. Jacobs published in 1902, though it is likely that it stemmed from much older unknown sources. Regardless of its origin, the adage is an important lesson for us all about carefully thinking through the consequences of our actions.
Most of us think of a contract as a lengthy written legal document signed by both parties. However that isn't the only form of a contract. As you will see, it can be surprisingly easily to form a legally binding contract, the consequences of which can be very costly!
Forming a contract: The OfferA contract is legally formed by offer and acceptance.
The offer can be oral or written, and made expressly in words, or by conduct. The person making the offer will be bound by the contract if a reasonable third party would believe that they intended to be bound, and the offer was accepted.
Frustrated that he was struggling to find a buyer for his small two bedroom town house, Simon said to his neighbour Steve in the pub "If you find me a buyer I'll give you a million pounds." Clearly Simon did not intend to be bound into a contract with Steve and it was not a genuine offer. Therefore if Steve does find a buyer for Simon's house, he will not be able to claim £1,000,000 from Simon.
Forming a contract: The AcceptanceThere are lots of ways in which an offer can be accepted. However the most common are:
- Orally or in writing confirming an agreement
- By the party accepting and completing their side of the contract
Elaine sees professional gardener Eddie at the local newsagents. She says to him "I'll give you £30 to trim back my evergreen hedges over the next week whilst I'm away on holiday."
Eddie can accept the offer by:
- Answering back to Elaine along the lines of "Yes sure I'll trim them for you next week"
- Texting Elaine the next week along the lines of "I'll pop round in the next couple of days to trim them for you"
- By simply turning up and trimming the hedges the next week whilst Elaine is away
Revoking an offerIf you change your mind and no longer want to make the arrangement you offered, it is important that you clearly communicate this as soon as possible to the party that you made the offer to.
On Monday, Alison offered to pay Kenzie £40/clean to clean her house every fortnight from next month. Kenzie said that she would check her diary and get back to Alison. On Tuesday, Alison lost her job and decided that she could no longer afford a cleaner and so wanted to revoke her offer. As long as Alison communicates to Kenzie that the offer is withdrawn (she doesn't have to give a reason), before Kenzie communicates her acceptance, no contract will be formed.
Where possible, use an instant means to revoke the offer (e.g telling them in person, by text or email). Once the offer has been revoked, it cannot be accepted, and a contract will not be formed.
Getting out of a contractIt can be quite difficult to get out a contract as this is a legally binding agreement. That is why it is so important to "be careful what you wish for" and what you say.
If you find yourself in a position where you have perhaps inadvertently entered into a contract, there are a few ways to try to get out of the contract.
1) CapacityIn order to enter into a contract, both parties have to have sufficient mental capacity. If you can show that one party does not have legal capacity (e.g due to mental illness or dementia) then you will usually be able to show that a contract was not formed.
2) Unilateral mistakeIf one party made a mistake as to the terms of the contract, such that they would clearly have never entered into the contract, then they will usually be able to get out of the contract.
Jim sees Helen on her luxury yacht and cheekily offers to buy it for "500". Helen agrees, assuming that Jim meant £500,000. Jim actually meant £500. Clearly Helen was mistaken as to the terms of the contract and would not have entered into the contract had she known the actual terms. She will therefore be able to claim unilateral mistake and avoid the contract.
3) Mutual mistakeIf both parties have failed to understand each other, then they cannot have legitimately reached an agreement. A contract will therefore be avoided.
Damages for breach of contractIf you end up in a position where you have formed a contract, it is really important that you don't just ignore it; it won't just go away and it is likely that the other party will claim against you for breach of contract. In addition to paying damages, you will then likely also have to pay legal costs.
What damages can be claimed for breach of contract?The underlying principle applied by the Courts is to put the party not in breach back in the same position that they would have been in had the breach not occurred. Usually this will be the sum of any actual losses suffered.
Kennedy enters into a contract with Naseem. It is agreed that Naseem will find a buyer for Kennedy's car in return for a finder's fee of 10% of the asking price. Naseem finds a buyer for Kennedy's car. However Kennedy changes her mind and decides not to sell the car. Kennedy also fails to pay Naseem's finder's fee.
Naseem makes a claim for breach of contract against Kennedy. The court will award Naseem the sum lost (the finder's fee amount) plus Naseem's legal costs of bringing the claim (including court fee).
Be careful what you wish for!As you have seen, it can be quite easy to form a legally binding contract. Our top tips are:
- Be careful what you say / agree with others
- If you have made an offer and wish to change your mind, clearly communicate that to the other party as soon as possible
- If you find yourself in a position whereby a contract has been agreed, do not just ignore it, as that will only make the situation worse and potentially cost you more money
- If you need help with getting out of a contract, or deciding if a contract has been made, seek independent legal advice. Your local Citizens' Advice Bureau will usually be able to provide you with free assistance with these types of problems