Contract

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What it is

A contract is a legally binding agreement between two or more parties (individuals or organisations) that sets out their rights and obligations regarding the contract’s subject matter.

Put another way: a contract tells the parties what to do, how to do it, when to do it by and what happens if something goes wrong.

When it applies

A contract should be entered into at the start of any important transaction or arrangement (before action is taken).

The contract sets out the key terms of that arrangement, together with the consequences if someone does not uphold their side of the bargain. In this way, contracts provide significant comfort as they set out each party’s expectations and provide a mechanism for redress should things go wrong.

Note that while some contracts must be in writing (for example the transfer of land and the assignment or license of certain intellectual property rights) this is not always the case. It's therefore possible for a contract to exist absent a formal, signed, document. For more on this see the FAQs.

Who/what it applies to

A contract binds the parties to it and, in some limited cases, third parties.

Legislation in the UK entitles third parties to enforce the terms of a contract if that party was clearly identified in the contract and the relevant term confers a benefit on that third party. More information on the rights of third parties is avilable on the Simmons & Simmons website.

Core principles

1. A contract is a legally binding promise.
2. The contract sets out the terms agreed by the parties – their rights, responsibilities and obligations.
3. Contract terms must be sufficiently clear to set out the parties’ intentions (if the language is too broad or vague it may not have legal effect).
4. Save for limited exceptions, only the terms set out in the contract are enforceable so parties must make sure that all relevant terms are included within the contract itself. 
5. A wronged party can enforce a breach of contract (ultimately in court).

Why it matters (risks/opportunities)

Risks

Without a contract: 

• terms of the agreement are unclear, risking unmet expectations and damaged relationships
• the costs of dispute are increased as parties need to prove the agreed terms, rather than simply referring to a written contract
• for the sale of goods, parties risk title not passing (which can undermine subsequent transactions)

Opportunities

With a contract:

• artists can monetise their work and be recognised for it e.g. by including attribution obligations in the agreement
• the parties have a clear set of enforceable terms, which reduce the risk and costs of dispute
• parties can tailor the terms to meet their specific needs on any given issue e.g. payment structures, intellectual property and future rights

Key legal considerations/elements

To be legally binding a contract must have: 

• Offer – one party must make an offer. For example, to sell an item for a specified price.
• Acceptance – the other party must accept that offer (or make a counter-offer e.g. enter into a negotiation, which must at some point end in an acceptance of terms).
• Consideration – the value to be provided for the goods or services in question. This is often, but does not need to be, money e.g. "I will pay £100 for the item". However, it could be the transfer of goods, the provision of services or an agreement not to act.
• Intention to create legal relations – both parties must intend to create, and be bound by, a legal relationship.
• Capacity – the parties must have legal capacity to enter into the contract. That is, for individuals they must have mental capacity to enter into the contract and cannot be minors. Companies have capacity to enter into agreements by duly authorised representatives.

Key commercial considerations/elements

The contract should clearly define both parties’ expectations e.g. deadlines, payment (including payment schedules if necessary), accreditation, duration (when does the contract end) and any other specific requirements.

Parties should think about all the consequences of the agreement before signing – including what it might limit them from doing moving forward (e.g. generating further income from the work) to ensure they are adequately compensated for this.

Make sure the correct entity is a party to the agreement. If operating a business through a limited liability company (even if it only has one employee), make sure the company is the party and not that employee in their individual capacity.

Think ahead to real world scenarios – what could go wrong, what opportunities might arise? Try to address this where appropriate in the agreement.

Contracts can be an important tool in reputation management. For example, limiting the ways in which your work can be used/reproduced or negotiating accreditation.

FAQs

Does it need to be in writing?

While it's good practice for contracts to be in writing they do not have to be. This means that provided the legal test for a contract to be made has been satisfied (see key legal considerations) a legally binding contract can be formed orally or through the exchange of emails.

Can the terms of the contract be changed once signed?

Once an agreement has been signed, it can only be amended in accordance with its terms or by all the parties agreeing to a change (usually through a formal amendment signed by the parties).

What should I do once I sign a contract?

Be clear on your obligations (and those of the other party). Diarise key dates (with notice) to make sure you deliver what is expected on time.