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Methods of Forming An Agreement

Creating "Formal" Commercial Contracts, and Alternatives

Although there are good reasons given above for using a “formal contract”, that does not mean that any less formality or absence of formality results in the transaction being defective or very risky. It is simply that an agreement made in some other, less formal, way will tend to introduce a degree of uncertainty as to whether there is a binding agreement between the parties and what the terms of it are, and that can lead to an increased risk of misunderstandings and disputes between them.

However, it is often not practicable to deal with other businesses on the basis of a formal contract. In those cases, it is prudent to contract in some other way that will still ensure that a binding agreement is created and that there is certainty as to what are all the terms of the agreement. The object should always be to create certainty by establishing clear evidence of the existence of the agreement and its terms so that that evidence can be used where there is a dispute between the parties, e.g. where one alleges that the other is in breach of contract, or there is a dispute between the parties as to what are the terms of the contract.

Creating a legally binding agreement as a “formal contract” is only one means of establishing evidence of what is agreed. Where this is not practicable, there are alternatives ways of forming a binding agreement and establishing that evidence, but some of these might be less satisfactory because, they can give rise to a degree uncertainty if adequate care is not taken in the way the agreement is created.

An alternative way of forming an agreement whose terms and other content are clear might be, for example, for a supplier to email a prospective business customer enclosing the supplier’s standard terms of sale, referring in that email to those enclosed terms, making clear that any order placed by the customer will be deemed to be on those terms and not any other or additional terms, and that any such order will be binding on both parties when (but only when) the supplier sends an email confirming its unconditional acceptance of the order. (There is a wide variety of template sets of standard terms of sale and other sets of standard terms of business available on the website which can be used in that way when the parties are to enter into a binding agreement.)

Using this alternative, slightly less formal, method of forming an agreement means that if the customer replies with an order containing anything that the supplier does not wish to agree to, the supplier will not be bound by the order. For example, the customer might reply saying that it does not agree to the standard terms, or it might enclose with (or set out in) their reply different or additional terms. This would be of no effect if not then agreed by the supplier and the supplier responds making clear that he rejects the customer’s reply.

Of course, the customer might not reply in that way but might, for example, instead reply to the supplier’s email by setting out the type and quantity of goods or services it wishes to buy, a delivery date and price. Such details might or might not be acceptable to the supplier, but it will have the ability to accept or reject any of those details. More usually, communications between the parties will not follow that pattern and, typically, before the supplier is first contacted by the customer, the supplier will have either included with/in the initial email a quotation for a particular type and quantity of goods/services, price, and delivery date, or the website will have set out this information. In either case, when the customer first contacts the supplier, it will be by mean of the customer’s order adopting that information that the supplier has already provided. In that case, therefore, the order is more likely to be acceptable to, and accepted by, the supplier.

Note that where the supplier provides information about the terms of agreement and details of goods, pricing etc. before the customer submits an order, there is a degree of formality and adequate evidence of agreement as to what is being purchased and the terms of the agreement, with little scope for uncertainty about the details of those matters. This is a more easily manageable situation for the supplier than where the customer contacts the supplier before the supplier has submitted all relevant details to the customer.

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