somebody appointed to act on behalf of another person (known as the
principal). The amount of authority to deal that the agent has is
subject to agreement between the principal and the agent. However,
unless told otherwise, third parties can assume the agent has full
powers to deal.
using an independent third party to settle disputes without going to
court. The third party acting as arbitrator must be agreed by both
sides. Contracts often include arbitration clauses nominating an
arbitrator in advance.
Breach of contract -
failure by one party to a contract to uphold their part of the deal. A
breach of contract will make the whole contract void and can lead to
damages being awarded against the party which is in breach.
Comfort letters -
documents issued to back up an agreement but which do not have any
contractual standing. They are often issued by a parent or associate
company stating that the group will back up the position of a small
company to improve its trading position. They always state that they are
not intended to be legally binding. Also known as letters
major terms in a contract. Conditions are the basis of any contract and
if one of them fails or is broken, the contract is breached. These are
in contrast to warranties,
the other type of contract term, which are less important and will not
usually lead to the breach of the contract - but rather an adjustment in
price or a payment of damages.
Confidentiality agreement -
an agreement made to protect confidential information if it has to be
disclosed to another party. This often happens during negotiations for a
larger contract, when the parties may need to divulge information about
their operations to each other. In this situation, the confidentiality
agreement forms a binding contract not to pass on that information
whether or not the actual contract is ever signed. Also known as a
in a contract each side must give some consideration to the other. Often
referred to as the quid pro quo. Usually this is the price paid by one
side and the goods supplied by the other. But it can be anything of
value to the other party, and can be negative - i.e., someone
promising not to exercise a right of access over somebody else's land in
return for a payment would be a valid contract, even if there was no
intention of ever using the right anyway.
a person who buys goods or services but not as part of their business. A
company can be a consumer for contracts not related to its business -
especially for goods or services it buys for its employees. Charities
are also treated as consumers.
Due diligence -
the formal process of investigating the background of a business, either
prior to buying it, or as another party in a major contract. It is used
to ensure that there are no hidden details that could affect the deal.
Employment contract -
a contract between an employer and an employee. This differs from other
contracts in that it is governed by employment legislation - which takes
precedence over normal contract law.
Exclusion clauses -
clauses in a contract that are intended to exclude one party from
liability if a stated circumstance happens. They are types of
exemption clauses. The courts tend to interpret them strictly
and, where possible, in favour of the party that did not write them. In
customer dealings, exclusion clauses are governed by regulations that
render most of them ineffective but note that these regulations do not
cover you in business dealings.
Exemption clauses -
clauses in a contract that try to restrict the liability of the party
that writes them. These are split into exclusion
clauses that try to
exclude liability completely for specified outcomes, and limitation
clauses that try to set a maximum on the amount of damages the party may
have to pay if there is a failure of some part of the contract.
Exemption clauses are regulated very strictly in consumer dealings but
these don't apply for those who deal in the course of their business.
Express terms -
the terms actually stated in the contract. These can be the written
terms, or verbal ones agreed before or at the time the contract is made
(see implied terms).
Going concern -
accounting idea that a business should be valued on the basis that it
will be continuing to trade and able to use its assets for their
intended purpose. The alternative is a break-up basis, which sets values
according to what the assets could be sold for immediately - often much
less than their value if they were kept in use.
Implied terms -
are terms and clauses that are implied in a contract by law or custom
and practice without actually being mentioned by any party. Terms
implied by custom and practice can always be overridden by
express terms, but some terms implied by law cannot be
overridden, particularly those relating to consumers (see exemption
inclusion in, or adoption of, some term or condition as part of the
contract. It differs from its company law definition where it refers to
the legal act of creating a company.
a remedy sometimes awarded by the court that stops some action being
taken. It can be used to stop another party doing something against the
terms of the contract. Injunctions are at the court's discretion and a
judge may refuse to give one and award damages instead.
Joint and several liability -
where parties act together in a contract as partners they have joint and
several liability. In addition to all the partners being responsible
together, each partner is also liable individually for the entire
contract - so a creditor could recover a whole debt from any one of them
individually, leaving that person to recover their shares from the rest
of the partners.
Joint venture -
an agreement between two or more independent businesses in a business
enterprise, in which they will share the costs, management, profits or
benefits arising from the venture. The exact shares and responsibilities
will be set out in a Joint Venture Agreement.
a jurisdiction clause sets out the country or state whose laws will
govern the contract and where any legal action must take place. Don't
forget that England and Scotland have different legal codes, and this
may need to be specified.
Letters of comfort -
see Comfort letters.
a person or business deemed liable is subject to a legal obligation. A
person/business who commits a wrong or breaks a contract or trust is
said to be liable or responsible for it.
Limited liability -
usually refers to limited companies where the owners' liability to pay
the debts of the company is limited to the value of their shares. It can
also apply to contracts where a valid limitation clause has been
included in the terms.
the formal breaking up of a company or partnership by realising (selling
or transferring to pay a debt) the assets of the business. This usually
happens when the business is insolvent, but a solvent business can be
liquidated if it no longer wishes to continue trading for whatever
where one party to a contract makes a false statement of fact to the
other which that other person relies on. Where there has been a
misrepresentation then the party who received the false statement can
get damages for
their loss. The remedy of rescission (putting things back to how they
were before the contract began) is sometimes available, but where it is
not possible or too difficult the court can award damages instead.
an offer to contract must be made with the intention to create, if
accepted, a legal relationship. It must be capable of being accepted
(not containing any impossible conditions), must also be complete (not
requiring more information to define the offer) and not merely
Parent company -
where one company owns more than 50 per cent of the voting rights of
another company it is the parent of that company which in turn becomes
its subsidiary. It can also occur where the parent has less than 50 per
cent but can control the board of directors of the subsidiary: that is,
it has the power to appoint and remove directors without referring to
when two or more people or organisations join together to carry on a
a person who acts on behalf of another for a specific purpose, or the
form used to make such an appointment. In a company a shareholder can
appoint a proxy to attend a meeting and vote on their behalf.
the minimum number of people needed at a meeting for it to proceed and
make any decisions.
giving authority to an act that has already been done. A company general
meeting resolution can ratify an act previously done by the directors;
or a principal can choose to ratify the act of an agent that
was beyond the specified power of the agent.
has two meanings in contract law. The first is where a party refuses to
comply with a contract and this amounts to a breach of contract. The
second is where a contract was made by a minor (person under the age of
18) who then repudiates it at or shortly after the age of 18. Then the
repudiation voids the
contract rather than causing a breach of
Restrictive covenant -
is often included in long-term contracts and contracts of employment to
stop the parties working with competitors during the period of the
agreement and for some time thereafter. However, unless carefully
written the courts will see them as being a restraint of trade and not
Service contract -
directors and officers of a company are usually given service contracts
that are different to a contract of service or employment contract. This
is because directors and officers are not always employees and the
effect of employment law is different.
Shareholders' agreement -
an agreement between all of the shareholders about how the company
should be run and the application of the rights of the shareholders.
This acts as a contract between the shareholders. The company itself is
not bound by it, as it is not a party to the agreement.
Subject to contract -
words used on documents exchanged by parties during contract
negotiations. They denote that the document is not an offer or
acceptance and negotiations are ongoing. Often the expression without
prejudice is used
when subject to contract is meant.
Unfair terms -
some terms are made unfair by legislation and will not be enforced by
the courts and may even be interpreted against the person who included
them in the contract. The legislation mainly protects consumers, but can
also apply where there is a business-to-business contract in which one
party is significantly more powerful than the other.
a void contract is one that cannot be performed or completed at all. A
void contract is void from the beginning and the normal remedy, if
possible, is to put things back to where they were before the contract.
Contracts are void where one party lacks the capacity to perform the
contracted task, it is based on a mistake, or it is illegal.
promises made in a contract, but which are less than a condition.
Failure of a warranty results in liability to pay damages but will not
be a breach of
failure of a condition, which does breach the contract.
Without prejudice -
a term used by solicitors in negotiations over disputes where an offer
is made in an attempt to avoid going to court. If the case does go to
court no offer or facts stated to be without prejudice can be disclosed
as evidence. Often misused by businesses during negotiations when they
actually mean subject