Why your Business Contracts may not be as Fixed and Certain as you Think

Every business deals with contractual issues on a daily basis so it makes sense to ensure your business has the right contracts and that you get good legal advice to ensure that you understand your contracts.

We’d probably all agree with the above as a premise but did you know that recent surveys have suggested that up to 80% of sme businesses don’t instruct lawyers?

It may be that some of the 20% that recognise the value and importance of legal advice and having good contracts drafted do so without full knowledge or under a major misapprehension – this creates it’s own risks.

There’s an understandable temptation for a small business that invests in having contracts drafted professionally to switch off afterwards. In some ways that can perhaps be more dangerous than relying on your own research, vigilance and reading up on contract law basics.

Imagine you’re a growing small business. You recognise you need detailed terms and conditions so you instruct a lawyer recommended by someone you trust. Having received your bespoke template from your lawyer, you start using it, insisting on it for all customers/clients.

Job done and all good yes?

Well, maybe not so, because it’s essential, according to Ben Jones, a contract lawyer at Darlingtons law firm that you and your staff understand every word of the contract, why it’s in there, the implications and that contracts aren’t necessarily fixed on your written terms.

How can contracts change when they’ve been written and agreed?

Why your business contracts may not be as fixed and certain as you think

Common ways include :-

  1. The contract was never agreed in the first place – whilst unusual because conduct of the party receiving the contract may ratify it, then general principle under contract law is that silence does not constitute acceptance. Just sending someone a contract does not mean it applies so there are risks of not getting express conformation – more on this here.
  2. Variation – perhaps the biggest single error or misunderstanding arises where a written contract is in place. The party issuing the contract may believe it is set in stone. Contracts can often be varied by e-mail communications, verbal conversations or even by conduct. If your contracts don’t expressly state otherwise, the other party to the contract may be entitled to believe that, for example an email varying a contract stipulation from a member of your staff is legitimate. Consequently, ensure your contracts make clear who has authority to vary your contracts and how.
  3. Waiver – a form of variation. If the other party breaches terms of your contract and you don’t enforce your rights, you may have waived the breach and thereby changed the contract. A typical example would be payment terms. Clearly, this is a key contract term so if the other party is late paying and doe this several times, for several orders, you may not be able to enforce that term strictly in the future.
  4. Implied terms and unenforceable terms – a main advantage of getting contracts drafted by an experienced lawyer is avoiding this problem. You can include whatever you want in your contract and it’s tempting to exclude all liabilities and include severe penalties for breach by the other party. However, these clauses may not be enforceable, especially in a business to consumer context where statutory protections are implied or seeking to avoid liability for personal injury or product liability and employment contracts where the courts will override or water down clauses excessively in favour of an employer.
  5. Misunderstanding your contract – having spent money on getting a contract drafted, it’s all too common to see businesses start using that contract or in some cases just filing it away, without understanding why the contract has each clause in it. If you don’t understand your contracts, you are likely to get caught out in some way in the future.
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