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February 2017

When a customer cancels a contract

By | Problem Solved
[ultimate_heading main_heading=”Problem” main_heading_color=”#000000″ alignment=”left” margin_design_tab_text=”” main_heading_font_size=”desktop:18px;” main_heading_margin=”margin-bottom:15px;”]I quoted for a painting and decorating job and the quote was accepted by the customer.  The customer then asked me to supply the materials that she was originally going to supply.  We agreed that I would supply the materials at an additional cost to the quotation and everyone was happy.

However, I have just received an email from the customer to say that her usual painter and decorator could now fit her in, so she would no longer be requiring my services.  However, I have already ordered and paid for the materials she requested and because the materials are special order I cannot return them or use on any other jobs.  Can I request that she pays for these materials and where do I stand in the future on customers accepting quotes and then cancelling?  Many thanks in anticipation.

Ken, Somerby[/ultimate_heading]

[ultimate_heading main_heading=”Response” main_heading_color=”#000000″ alignment=”left” main_heading_font_size=”desktop:18px;” main_heading_margin=”margin-bottom:15px;”]You and your customer have entered into a binding contract for you to carry out certain painting and decorating works (as stated in your quotation), and in return your customer has agreed to pay the sum quoted.  You and your customer are therefore bound by the terms of the contract and a breach by either party could result in the innocent party claiming its losses.

Under a contract, there are three types of terms – warranties, conditions and innominate terms.  A warranty is a minor term of a contract and if breached, the innocent party may claim damages arising from the breach, but is not entitled to end the contract.  A condition is a major term which goes to the root of the contract and if breached, the innocent party is entitled to repudiate and end the contract.  Innominate terms lie between warranties and conditions.

In stating that your services are no longer required, this would be a breach of a condition which would entitle you to accept the wrongful repudiation (you will need to reply to your customer’s email to say that this is a repudiatory breach of which you are accepting), and bring the contract to an end, the result of which would entitle you to claim for any work done (including the materials that you have purchased), plus any loss of profit.

Michael Gerard[/ultimate_heading]

When does a contract, either verbal or written, become legally binding?

By | news

The law of contract can be complex. In the recent court case, MacInnes v Gross (2017), the court held that an agreement made over dinner was not legally binding. However, the judge also stated that a legally enforceable contract could come into existence over a discussion. So exactly what are the criteria that make a contract legally binding?

Contract Formation – Intention to Establish Legal Relations

To form a legally enforceable agreement (a legal contract) there must be:

  • An intention to create legal relations.
  • Certainty of terms.
  • “Consideration” for the promise is usually an exchange of money for goods or services.
  • During the offer and acceptance, the parties must intend to be legally bound.

If any of the above are missing the contract cannot be enforced in law.

In MacInnes v Gross (2017) the Claimant (M) sought a Court order for payment of E 13.5 Million.

The key meeting had taken place between the two businessmen over dinner in a restaurant.  M said it was agreed at the meeting he would leave his employment with an investment bank and provide services to the Defendant Gross (G) with the aim of maximising G’s return on the sale of his business.  M also said he would receive a payment sum calculated by reference to the amount of the difference between the actual sale price of the business and the target price.

The following day M e-mailed G saying what he considered to be their agreement, which he said was “on headline terms”.

After nine months, when a possible sale of the G’s business began to materialise, M emailed saying they needed to make a “proper contract”.

The Court dismissed the claim.  It said although a legally enforceable contract could come into existence over a discussion, the informality of the setting (evening dinner) required a careful examination of whether the parties had an intention to create legal relations.

The Claimant’s use of “on headline terms” was a strong indication at that point in time there was no such intention.  It indicated that the preparation of a more formal written contract was anticipated.

Comment from John Cato

Often parties will produce pre-contract documents which they assume are not enforceable.  These include Letters of Intent, Memorandum of Understanding, Heads of Agreement and Heads of Terms.  These documents are frequently used when negotiating commercial transactions such as outsourcing arrangements, mergers and acquisitions, joint ventures and project financing.

The parties commonly believe the heading of the document gives rise to such significant doubt about their intention to create legal relations, that they are not enforceable.

This is not always quite so straightforward.  For instance a “letter of intent” might mean:

  • I perhaps intend to do somethings; or
  • I do intend to do it.

All of these pre-contract documents may be subject to the Court’s interpretation, and there is no absolute rule that documents described as above are framework documents and cannot be contractual, particularly if the documents are signed by the parties.

Solicitors often use the expression “subject to contract” to rebut any contractual intention.  These words do create a strong presumption the parties do not want to be bound, but whether they are effective to deny the party’s intention to create legal relations is a question of fact for the Court.

Parties also use phrases such as “subject to shareholder approval” which are ambiguous in a Court of Law.  It may indicate the parties do not intend to have a binding obligation until that happens, or, depending on the form of words used and subsequent performance, it may indicate a legally binding contract which is subject to a condition.

In the event of a claim, the Courts will always assess the parties’ words and their conduct in the whole factual matrix to decide if a contract has been formed, so the phrase is not fool proof.

I would always advise parties to make the position completely clear and spell out their intention expressly.

I will often mark the document “Subject to Contract” but will also include a clause like: –

           These [heads of terms] are not intended to be legally binding between the parties.

Published Employment Tribunals pose a new risk to employers

By | Employment law, news

Employment tribunal decisions are now to be automatically published on a new online, searchable database which is available for anyone to access. For an employer this new development creates a risk  of adverse publicity and could provide potential claimants with additional information.

Final hearings in Employment Tribunals are public, and the decisions are available subject to the Court’s power to make a restricted reporting order or hear matters in private in very rare cases.

Previously you had to apply to the Court for a copy of a Tribunal decision.

All Employment Tribunal judgments are now available at: –

https://www.gov.uk/employment-tribunal-decisions

The decisions which have been uploaded (and previous decisions may start being entered) are searchable.  Anyone can search by the drop down menu or the free text search.  A search can be made by the name of employee, employer, Tribunal Judge or a member of the tribunal.

The risk of adverse publicity for employers has been significantly increased by this website.

Employees and their solicitors who are considering bringing a claim could search to see whether there are judgments regarding claims of a similar nature against a Respondent company.

If there are previous judgments against the company regarding, say, discrimination, employees could seek to draw inferences from those previous decisions.

This makes it even more important to get your policies and procedures in place and ensure that your Managers both know them and follow them in their dealings with employees.

For more information on our employment law services please visit employment law.

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