As the short-lived saga of the European Super League settles into memory, it may be a useful exercise to look back on the tail end of the events. Specifically, when Real Madrid president and key architect of the ESL stated, with confidence that “I don’t need to explain what a binding contract is. But come on, the clubs cannot leave.”
This ambitious statement was made shortly after the clubs left. It is perhaps useful to explain therefore what makes a “binding contract”.
In English law, there are traditionally five key elements which influence whether a contract is considered binding on the parties: offer, acceptance, consideration, intention to create legal relations, and certainty of terms.
If each element is present, a binding contract will be formed. It must also be remembered that a contract does not have to be written to be binding on both parties. So long as all the criteria below are met, a binding contract will still be formed and both parties will be obliged to follow its terms.
Offer of the European Super League
The offer is an explicit promise by one party to the other agreeing to finish negotiations and to contract with each other on the specific terms so offered, should the other party agree to do so.
Practically for businesses, you should consider:
- making sure all correspondence sent while negotiating terms are clearly marked as “subject to contract”, or similar words to this effect, in order to avoid any implication you are making a formal offer prematurely; and
- should you send out an offer, consider clearly stating when the offer expires lest you receive an acceptance after a significant amount of time and are therefore bound to your offered terms.
Acceptance of the European Super League
Acceptance is the second prong to the offer and, as it implies, means that the party to whom an offer has been made must clearly and without any qualifications express their agreement to the terms. “I agree to the terms” is acceptance, “I agree to the terms except that delivery should take place next week” is not acceptance.
In some circumstances, an offer can be accepted by conduct when both parties act as if the contract has been entered into, but it is best not to rely on this.
Businesses should consider to the following:
- do not accept a clear offer under the hopes that you will be able to renegotiate terms later – only accept an offer if you are happy with all the terms; and
- if you do want to accept a contract, make sure it is absolutely clear you are accepting it – do not start raising new points to negotiate, otherwise it may not be considered an acceptance.
One of the more opaque concepts of contract law, consideration simple states that a contract must be reciprocal – they are an exchange of value. One party must provide something in exchange for the other party providing something else. If there is no exchange, it is a gift and therefore (generally speaking) not binding.
Courts do not care if the consideration exchanged represents a good deal – they will not intervene where a business, for example, to their own detriment enters into an agreement well outside of market value. The courts only care that there is something of value exchanged, be that cash, a service, a good, or something else of value.
If there is any uncertainty as to the consideration, businesses may wish to consider:
- acknowledging the existence of some token piece of consideration (a simple clause such as “in consideration, Party A shall pay to Party B the sum of £1.00, receipt of which is duly acknowledged”); or
- execute the document as a deed.
Intention to create legal relations
If it is clear that the parties did not mutually intend the contract to be legally binding, then the courts will not make it so. In commercial situations such intention is generally presumed, so we will not dwell on this.
However, if you do not wish to create legal relations, businesses should make this expressly clear. Simply stating clearly “this is not intended to create legal relations” in a prominent location should remove any ambiguity.
Certainty of terms
If a contract is so vague as to have no definitive meaning without the courts adding additional terms, then the contract will generally not be able to be enforced. For example, in one case, the courts held that an agreement to simply acquire goods “on hire-purchase” was too uncertain – “on hire-purchase” could cover a multitude of different agreements.
Businesses should contemplate simply taking a step back and working through exactly how the contract will work in practice – is there anything you are assuming which has been left unsaid?
If any of this is uncertain or making you reconsider your own legal relations, or indeed you are a president of football club and would like a refresher, contact Lewis Harvey corporate and commercial team at Gardner Leader can help with all your contractual needs.