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Informal Agreements Pose Greater Uncertainty

Greater Risk Using Informal Contracts

The explanation about “formal contracts” does not mean that anything less than a “formal contract” is defective or very risky - it is simply that an agreement made in some other way will be more likely to introduce a degree of uncertainty as to whether there is a binding agreement between the parties and what are the terms of it.

Where there is less formality or a complete absence of formality, or confusing communications, it can create considerable uncertainty and a resulting increased risk of misunderstanding, and that can give rise to disputes or it might complicate a dispute.

A supplier might publish its standard sales terms on its website or include them in hard copy sales leaflets, intending that all sales will be on those terms. However, there might be a new customer who has never seen the website or received such a leaflet, but who emails the supplier requesting delivery of a stated type and quantity of items at the supplier’s current price. If the supplier tenders delivery of that order enclosing an invoice for the correct price (but not setting out on the reverse of the invoice its standard terms of sale) and the customer accepts that delivery, the supplier might be in difficulty if it subsequently seeks to claim that its standard terms apply as terms of the contract with that customer for the supply of the goods/services in question.

Everyone is familiar with the common (but not legally satisfactory) scenario of a customer who needs some form of repair work to be carried out to the customer’s goods or some other type of service. The customer might contact a trades person with whom they have never dealt before. The trades person does not have a website, and it obtains business by advertising only the briefest details in newspapers or magazines, for example a very brief description of the type of services that they provide and their phone number. Between the time when the customer calls the trades person on the phone and the time when the trades person completes the services and asks for payment, there may be nothing in writing between the two parties. Nevertheless, the fact that the customer has requested the trades person to carry out their services in return for payment means that there is a binding agreement. However, in this type of scenario, some key terms (e.g. the timescale for starting and completing work) are never discussed or agreed let alone recorded in writing. This might easily give rise to a legal dispute because, for example, the absence of a written record means that it is not clear at the outset exactly what are the elements or scope of the services to be provided, or what is the basis for calculating the charges to be paid.

There might be many other scenarios that give rise to uncertainty. They might differ from the above ones in various ways, but the key point to be focused on in all cases is that it is important to be able to identify and avoid a situation arising in which there is uncertainty as to whether a contract actually exists and if it does, what are its terms and other contents.

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