Structure of a sales contract

There are no strict rules about forming a commercial agreement. It can be oral, written, or a combination of both. However, it's always best to put what you've both agreed in writing.

It's important for the contractual terms to be clear and understandable and to accurately reflect what you've both agreed. If a dispute arises in the future, a court may need to interpret your contract.

Typical elements of the contract

The structure of a commercial contract varies depending on its nature, but many would contain the following:

• Date: the date of the contract
• Parties: who is involved
• Recitals: the factual background to a clause or to the contract
• Commencement: when the contract would start
• Term: how long the contract will last
• Operative part: the essence of a contract, i.e. who has to do what
• Schedules: lists of relevant matters (usually appear separately)
• Execution and attestation: the signing clause.

Most of the above are self-explanatory. However, there are 3 areas that could be explained further.

Recitals

Recitals aren't essential, but are useful. They explain the factual background and reasons why the parties have agreed on certain terms. For example, they may state the factors that the parties considered when agreeing what the seller should be responsible for. These may help to show the reasonableness of clauses, which say that the seller isn't legally responsible for particular types of loss. (See Unfair contract terms, under 'Reasonableness'.)

The operative part

The operative part creates the legal rights and obligations of the parties. The clauses found here vary with the nature of the contract. These are some of the common clauses found in the operative part of a commercial contract:

Conditions precedent clauses: these are conditions that must be met before a contract becomes effective.

Rights and obligations: clauses setting out what the parties are promising to do, and how they're promising to do it.

Representations and warranties: promises made by either one of you about certain facts that may have encouraged the other party to enter into the contract. For example, the seller may promise that the goods will fulfil particular requirements.

Standard clauses: these are included in all agreements. For example, those about how and when any notices under the agreement must be delivered; and 'force majeure', where it has become impossible to fulfil a contract because of unforeseen circumstances beyond anyone's control. These circumstances would include war or natural disaster.

Schedules

Schedules allow you to keep the body of the contract fairly short and put other details in a separate place at the end of the agreement. For example, in an agreement for the sale of several goods, you can include a list of all the goods along with any accompanying details in a schedule. The body of the agreement must refer to the schedules to ensure they are incorporated into the agreement.

Drawing up the contract

Before there can be a contract, one party must make an offer to the other intending to be legally bound by that offer. The other party must then accept the terms of the offer without trying to change them.

If you're the seller, you'd want the offer to come from the buyer. This means it will be up to you to decide whether you want to accept the offer and create a binding contract. However, you'd also want the buyer to offer to buy on your standard terms and conditions so that these become the terms of the contract. You should therefore send the buyer your order form containing your standard terms and conditions. Your order form should say that by completing the form and sending it to you, the buyer is making you an offer.

Ideally, you should ask the buyer to sign your form, as this will bind them to the standard terms, whether or not they've actually read them. If the buyer doesn't sign, you'll need to show that you've taken reasonable steps to bring the standard terms to their attention. Alternatively, you'll need to demonstrate that you've consistently used the same standard terms in your regular dealings with that buyer.

If you, as the seller, make the offer, rather than the buyer, there are some safeguards you should adopt in relation to the buyer accepting the offer. You should give them a deadline to accept, and say that your offer will lapse if they haven't accepted by the deadline.

If the buyer is accepting by post, you should also exclude the postal acceptance rule, i.e. that the buyer's acceptance takes effect (and the contract is made) when the buyer posts their acceptance, and not when you actually receive it. Instead, you should say when making the offer that if the buyer is accepting by post, the acceptance is only effective when you receive it.

Ending a contract

You can agree that just one of you has the right to end the contract, or that both of you have this right. You could agree to a right to end in a variety of circumstances.

Jurisdiction and governing law clauses

If there is later a dispute or a breach of contract, a jurisdiction clause decides in which courts of the UK (e.g. England and Wales, Scotland or Northern Ireland) legal proceedings can be brought.

A governing law clause determines which nation's system of law (e.g. England and Wales, Scotland or Northern Ireland) is to be used when interpreting the obligations and rights of the parties under the contract.

It is important to include these clauses in sales contracts, because without them, disputes about these points may have to be settled by a court.

However, when including a jurisdiction clause keep in mind that, with only a few exceptions:

• If a consumer is domiciled in the UK, they can bring court proceedings against the seller either in the part of the UK where the consumer is domiciled, or in the part where the seller is domiciled.
• The seller can only bring court proceedings in the part of the UK where the consumer is domiciled.

(Very broadly, a person is domiciled in the place where they have their permanent home.)

Signing contracts with electronic signatures

In some situations, the use of electronic signatures is the only option for finalising agreements.

Electronic signatures include all signatures where the person signing does not use a pen (or other writing instrument) by hand to write directly on paper (often called a wet signature).

In English law, electronic signatures are not a new concept. In 2019, the Law Commission published a report confirming that electronic signatures could be used to execute (i.e. formally sign) most documents and deeds.

If the person signing the contract using an electronic signature intends to be bound by the document they're signing, and all other legal requirements such as witnessing are complied with, e-signed contracts will be just as enforceable as one signed by hand.

You have to be careful, though, when the signature is on behalf of a corporation. Ask the signatory to confirm that they have authority to sign and bind the corporation by electronic means and check the corporation's articles for any indication that electronic signatures are restricted.