Harper James advises UK businesses on commercial contracts under the laws of England and Wales, including whether a contract has been properly formed and signed by someone with authority. These issues affect enforceability, liability and the remedies available when a commercial relationship breaks down.
A company acts through people. A director usually has actual authority to bind the company in the ordinary course of business, subject to the company’s articles, board decisions and any internal approval limits. An employee or other agent has actual authority where the company has expressly or impliedly given them power to enter the relevant agreement.
Apparent authority arises from the company’s representation that an individual has authority, even where the individual lacks actual authority. For example, a business that consistently presents a senior manager as responsible for procurement can face difficulty denying that manager’s authority to place an order. Internal limits do not normally protect a company against a third party who relied reasonably on the company’s outward representation and acted in good faith.
A simple contract generally requires offer, acceptance, consideration, an intention to create legal relations and sufficient certainty of terms. The parties must agree on the essential commercial points, such as the goods or services, price or pricing mechanism, scope, duration and termination rights. Acceptance must correspond with the offer. A response that changes material terms is normally a counter-offer rather than acceptance.
Consideration is the exchange of value, such as payment for services or a promise to supply goods. Commercial agreements are presumed to be intended to create legal relations, but the wording and surrounding circumstances determine whether the parties reached a binding agreement. A document labelled “subject to contract” usually records negotiations rather than a completed contract, although the court examines the agreement as a whole.
Businesses should identify the contracting entities, confirm signatory authority, check any required board approval and ensure that schedules and incorporated terms are complete. Electronic signatures generally provide a valid method of signing a simple contract. A deed has additional formal requirements, including clear wording that it is executed as a deed and, for a company, execution by two authorised signatories or by one director in the presence of a witness. Keeping approval records, signed copies and evidence of acceptance provides a clear audit trail.