A contract is a legally binding agreement, more often than not between only two parties, although, of course, there can be as many parties as the circumstances require. A contract creates mutual obligations which, when broken or disputed, can be looked at and enforced by and through the courts. The word "contract" can be and is often misunderstood as it can suggest a formal or technical written document prepared and understood only by lawyers. There is also a lot of confusion as to the difference between a “contract”, an agreement, or a “gentleman’s agreement”. In reality, as with most things to do with the law, the important thing is the true nature of the arrangement rather than what name is given to it. In reality, an agreement and a contract are more often than not exactly the same thing.
All of us in our everyday lives enter into numerous contracts without perhaps even realising that we have done so. Simple examples include, buying a train ticket or getting our hair cut. Making a contract can be very simple and therefore, the first important point to be aware of is that a contract can, with a few exceptions, be made verbally. Although most verbal contracts are enforceable, the problem is that there is generally a lack of hard and fast evidence if there is then a dispute, and it can be one person’s word against another’s. As such, it is always prudent to have a written document setting out the terms which can then be used as evidence if there is a disagreement later.
It is possible to create a contract in many ways, by letter, e-mail, via a website, over the telephone, verbally, in writing or in a combination of these. For example, a contract may often be formed by me sending you a written quote, and you phoning me to accept.
Regardless of the format in which it is made, a contract will be formed when four basic elements are satisfied. They are:
- Offer,
- Acceptance,
- Consideration, and
- Intention to create legal relations.
In a recent case the parties had agreed that the defendant would carry out demolition work at a property but had disagreed over the precise terms of that agreement. The defendant (the contractor) argued the contract was formed by an exchange of WhatsApp text messages, whilst the claimant (the client) argued it was based on a specific demolition contract.
The dispute initially went to adjudication, which agreed with the contractor, however, the client refused to comply with the adjudicator’s decision, and instead it applied to court.
At court the judge held the exchange of WhatsApp messages constituted a concluded contract between the parties. This "informal" exchange showed that price, scope of works and payment terms had been agreed. The client’s' argument that it was necessary to agree contract duration or start date for there to be a concluded contract failed.
The lesson to be learnt is that every case is fact specific, and to a certain extent if it looks and smells like the parties have reached a legally binding agreement, they probably have. As such when discussing potential jobs or arrangements, whether it is verbally, by email, text, WhatsApp, or any other means of communication, beware that whatever you see could ultimately end up being part of a legal binding contract.