2nd July 2024

CPPD Module 26: Contract law basics

Business Companion’s new Contract Law guide sets out the key points of contract formation under consumer protection legislation. This excerpt gives a brief introduction

By Business Companion

Contracts set out important information about agreements between parties. This can include essential information, such as:

  • the nature of the contract and what it is about;
  • the benefits, detriment and responsibilities that the parties to the contract are agreeing to;
  • what happens if things go wrong;
  • the liability and any limits on such liability of the parties to the contract;
  • the legal jurisdiction that applies to the contract in the case of a dispute.

Having a contract that clearly sets out the intentions of the parties can reduce the chances of unnecessary disputes and costs. It can also clearly set out consumers’ and businesses’ rights, responsibilities and obligations.

There are also some legal requirements that businesses must comply with when entering into contracts, such as providing certain pre-contract information in consumer contracts, and ensuring the terms of contracts are fair. Businesses often include this information within their terms and conditions to ensure they are complying with these legal obligations, but sometimes key information has to be given particular prominence. It is also important that businesses’ advertising and sales literature accurately reflects the terms of their contracts, and highlights any points that customers might find surprising or especially onerous.

Contracts with consumers must comply with the requirements of consumer law and contract law principles. Businesses must also be aware that if they enter into contracts with consumers outside of England and Wales, such as those based in Scotland or Northern Ireland, they must ensure that their contract also complies with the laws of those nations.

Identifying a contract
The traditional way to recognise a contract is to identify whether the main elements of a contract are all present. These are:

  • an offer;
  • acceptance of that offer;
  • consideration;
  • an intention to create legal relations between the parties, which can include certainty of the terms agreed;
  • that each party has the capacity to enter into the contract.

When deciding whether a contract is in place, the law considers the intentions of the parties by considering such factors as any verbal and written interactions, where the discussions took place and the actions and conduct of the parties.

An example of an offer is where one party communicates that they would like to buy or sell goods or services. The offer needs to have sufficient information to be capable of being accepted and it needs to be clear that the party (whether it is the business or the consumer) making the offer intends to be bound by their offer.

Providing a quotation for home improvement work to a customer will usually involve an offer. Quotations will often be given to a customer after a trader has visited a consumer’s home and will include a detailed breakdown of the goods and services to be supplied, and the total cost for that work, inclusive of VAT.

A trader should only give a quotation when they are happy that they understand the customer’s needs and the job has been correctly priced.

Sometimes communications do not provide enough information to be legally considered an offer. For example, the display of goods in a shop window would not usually considered to be an offer. These communications are called ‘invitations to treat’.

An invitation to treat is a communication whereby a business invites consumers or other businesses to engage in further negotiations to purchase goods or services. A common example would be where goods are on display in a shop. The invitation to treat is therefore advising other people that a business has goods or services that they may be willing to sell and that further discussions or negotiations would be needed to form a contract. If the customer is interested in those goods, they may bring them to the till with the intention of purchasing them (in legal terms, this becomes the ‘offer’, which the business can then choose to ‘accept’).

Often, businesses will give estimates to customers who are looking to cost work that they may wish to have done. These are often given before a full site inspection or survey has been conducted and at the early stages of a discussion between a business and a customer. An estimate is not usually deemed to be an offer because it will be based on incomplete information.

The estimate should clearly state that it is an approximation of costs, and a full survey or additional information would be needed to provide a full quotation. This makes it clear to the customer that the costs could increase or decrease once full details, measurements etc. have been obtained. It is however very important that estimates are realistic and not misleading to avoid infringing consumer protection legislation.

Advertising your services
Most businesses will advertise their goods and services online, whether that is via an online shop on a website, through influencers, or the use of general marketing campaigns. The general legal principle is that advertisements or goods on display in online shops are usually ‘invitations to treat’.
The consumer makes the offer to purchase the goods and services when they put them into their virtual shopping basket and go through the process of purchasing the goods. The business accepts the offer (usually signified by taking payment from the consumer or otherwise stating that the order has been accepted) and goes on to dispatch the goods to the consumer.

Businesses also need to be aware that if they provide key information about a product and its price in a commercial communication that enables a consumer to decide whether to purchase that product, the business may be making an ‘invitation to purchase’ under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). For example, pages on a website displaying products that consumers can order, or prices on products in a shop, are likely to be ‘invitations to purchase’. If a business is advertising its services generally and no prices are supplied, this is unlikely to be an invitation to purchase.

If a business makes an ‘invitation to purchase’, certain information becomes ‘material information’ (a term used in the CPRs) that the consumer needs to be given in order to make an informed choice. This includes the main characteristics of the product, the businesses’ details (including its trading name and geographical address) and information such as the price (including all taxes).

A business may breach the CPRs if it fails to give consumers the information they need to make an informed choice in relation to the product if this would cause, or be likely to cause, the average consumer to take a transactional decision they would not have taken otherwise.

More information about businesses’ responsibilities under these Regulations can be found in Business Companion’s ‘Consumer protection from unfair trading’ guide.

The complete Business Companion Contract law basics guide is available here.

Visit tradingstandards.uk/cppdtest to complete the question and answer section of this module.

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