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To Sign Or Not To Sign?

If you’ve ever wondered if a contract you’ve signed is worth the paper it’s written on, you’re not alone. Southampton Science Park’s May Lunch & Learn webinar revealed why so many fall foul of contracts and what business owners can do to ensure they work for, and not against, your business.

Put simply, a contract is a legally binding promise by one party to do something for another in return for a consideration. It must cover four fundamentals: an offer, an acceptance, a consideration and an intention for parties to be bound by it.

It sounds incredibly simple but, as demonstrated by the fascinating examples that solicitor Zachary Proffitt detailed, the consequences of entering into contracts blindly are real and costly. First, he revealed the truth behind six common contract myths:

Myth 1: A contract must always be in writing
Wrong! Contracts can be in writing, oral or even created by the historical conduct of the parties involved. A court will find that a contract is in place, howsoever created, if the four fundamentals can be established. And there is no such thing as a ‘gentlemen’s agreement’!

Myth 2: A contract must be signed to be binding
Right! Signatures confirm a party’s intention to be bound. But be warned! Signatures come in many forms, written and electronic. Even an email footer can be regarded as binding so it’s possible to enter into an agreement simply via correspondence without you realising (even if that correspondence specifies ‘subject to contract’).

Myth 3: A signed contract is always enforceable
Wrong! There are many reasons why a contract could be rendered void and unenforceable, and this applies to contracts in their entirety and to individual clauses (which courts can remove). Commonly, this occurs where there is undue influence or misrepresentation about the anticipated functionality of a product or service purchased.

Myth 4: A contract can always be terminated
Wrong! While common law does offer the right to terminate in the event of a contract breach or refusal to perform, incorrectly exercising these rights could conversely put you in breach of contract.

Myth 5: A contract means my intellectual property is always protected
Wrong! Contracts must clearly set out intellectual property ownership and the terms under which it is licenced. Unless specified, the general position is that IP created by an employee is owned by the company, whereas IP created by a consultant is owned by the consultant.

Myth 6: A third party’s contract will be suitable and compliant
Wrong! Standard third-party agreements are rarely suitable for both parties and can even be uncompliant in common areas such as data protection, liability caps, indemnities, warranties and confidentiality.

So, what’s the best way to approach a commercial contract?

“Firstly, keep it simple,” says Zachary. “If you start with the 5 W’s – who, what, why, where and when – you’ve got a good clear structure to work with and it’ll be easier to see areas of risk. Also, remember to negotiate! It is always worth the effort because, even if there is no wiggle room, at least your concerns are on record in the event of a future dispute.”

“Next, avoid legalese and jargon if you want to avoid a potential dispute. Courts take the view that contracts should be clear and in easily accessible language so, if you don’t understand a provision, ask for an explanation. You cannot later suggest that you signed something you didn’t understand.”

“Finally, read the whole contract, ideally more than once. You’d be surprised how often contentious issues are hidden at the back or in appended schedules where you wouldn’t expect them to be.”

The session closed with a highly engaged Q&A session before Jane Holt, Business Development Director for the Science Park, thanked all for their attendance and enthusiastic participation.

Keep up to date with Southampton Science Park’s calendar of free Lunch & Learn webinars here.

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