When are contracts formed when buying for agri-businesses

Thrings Farms agriculture contracts for agri businesses

Farmers weekly legal questions. This week Ryan Small, a Solicitor in the Thrings Agriculture team, and a specialist in dispute resolution answers questions about contracts.

Q. I had just agreed a price for fertiliser on the phone when the price dropped significantly very shortly afterwards. I’d like to know when a contract is formed. Can I cancel the order with no consequences and get a lower price?

A. When people hear that a legally binding contract has been entered into, there is a tendency to picture a formal written contract. However, contracts can be formed in any manner so long as the formalities of a contract are present.

We enter into legally binding contracts every day of our lives without really acknowledging it. A contract can be made in writing without the two parties ever meeting in person, via email, text messages or instant messaging services. It can be made through actions such as taking an item to the counter of a shop and paying for it, or verbally without anything ever being written down.

When is a contract formed?

To identify whether a contract has been formed, five key principles must exist. Once they do then the agreement is legally binding and enforceable by each party. These principles are as follows:

1. Offer

2. Acceptance

3. Consideration

4. Intention to create legal relations

5. Certainty of terms

The first two should be relatively straightforward to identify. In this case, there has been an offer by one party to sell (or purchase) fertiliser at a price. The other party has accepted this offer.

Consideration is something of value that one party is giving to the other in the bargain that they have agreed. Consideration can be complicated where money is not present, for example when a party agrees to do or not to do something or giving something of value (other than money) to the other party.

It is easier to identify in contracts such as this, where the consideration is the money that you must pay for the fertiliser.

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Whether there is an intention to create legal relations will turn on the facts of each case. It should be noted that in commercial situations there is a rebuttable presumption in favour of an intention to create legal relations being present – the starting position is that this is present, and it is for a party to prove otherwise.

Finally, the agreement should not lack any essential terms or otherwise be uncertain. This again will turn on the facts of each case.

Whilst further facts and instructions from you would be required to advise you properly, working from the information from the question it could be likely that a contract has been formed.

If so, and you withdraw from the agreement, this could give rise to a breach of contract claim that the merchant could enforce against you. If the merchant was successful in his claim, then the aim of the damages would be to put him in the position he would have been in had the contract been performed – i.e. the sale of fertiliser at the agreed price.

Depending on your relationship with the merchant, it may be worth engaging with him to see if there is any room for negotiations.

From a commercial perspective, the merchant may be willing to negotiate a different price or vary the contract altogether because he wishes to keep your business. Alternatively, he may not have the appetite to enforce the breach of contract against you (due for example to the low sums involved).

This area of law can often be complicated, with confusion as to whether a contract exists and what has been agreed. If you are in any doubt as to your legal position then seek legal advice.

If you have more questions around any issue raised in this article please contact our agriculture team.

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