Formation Of A Contract

• Published date: 25 August 2023
• Subject Matter: Corporate/Commercial Law, Contracts and Commercial Law
• Law Firm: Shepherd and Wedderburn LLP
• Author: Sahira Rafiq and John MacKenzie

The key to forming a valid and enforceable contract is to ensure that there is clarity and mutual agreement at every stage of the process, from the original offer through to the final acceptance. Parties should understand what the terms of the contract are and when key stages of the formation process are achieved.

In this article, we explain key contract elements and best practice.

In Scotland, there are three core elements that must be present in every contract. These are:

1. Agreement on the essential terms of the contract;
2. Certainty of the terms of the contract; and
3. A mutual intention amongst the parties to create legal relations.

If a contract fails in any of these elements, it cannot be legally valid. This would make the contract unenforceable from the moment of its creation.

Contract Form

It is advisable that contracts should be in written form, but this is not a legal requirement in Scotland. The only exception to this rule is for contracts relating to real rights in land and gratuitous unilateral obligations, also known as promises. These will only be valid if they are in written form in accordance with the Requirements of Writing (Scotland) Act 1995.

Contracts can be formed orally, implied by a party's conduct, or created through a combination of these forms. However, these types of contracts will not benefit from the certainty that a written contract can provide, or from the greater evidential weight that it carries.

Offer and Acceptance

Contracts are typically brought into existence through offer and acceptance. An offer is a proposal by one party to enter into a contract on certain terms. The terms must be sufficiently detailed and clear so that if they are accepted then a contract can be formed without the need for further bargaining. Often, the terms of a contract will be detailed expressly in a single written document. However, it is also possible to incorporate terms into an offer by reference or through a course of dealing.

Incorporation by: reference

To incorporate terms into an offer by reference the offeror must refer to the relevant set of T&Cs and provide the offeree with a reasonable opportunity to read them. However, if any of the terms are unusually burdensome, the offeror must actively bring that term to the attention of the other party, otherwise it will not be incorporated.

In Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619, the High Court found that a term which included a substantial early cancellation fee was unduly...