The law of contract has slowly been developing in line with changes in the way people enter into contracts and use technology to communicate. One recent example of these changes is how the law treats a contract made by email. Some have argued that an exchange of informal emails would not be enough to create a formal legal relationship, but they are sadly mistaken based on recent case law developments.
If we first take a step backwards and review how contracts are formed, there are four main elements to creating a legally binding relationship (i.e. a contract): 1) there must be an offer; 2) that offer must be accepted; 3) there must be “consideration” (something of value exchanged); and 4) the parties must intend to enter into a contract. There is no general requirement that a contract must be in writing bar a few exceptions, such as the purchase of land. Nor is there any restriction on reaching a contractual agreement by email. In fact, in the case of Nicholas Prestige Homes v Neal (2010), the Court of Appeal provided a precedent confirming that all the elements needed to create a contract could be satisfied by an exchange of emails.
In the case, the terms of the contract were set out in an email and the seller accepted the terms when they replied: “Hi Mark, that’s fine. Looking forward to the viewings. Sally.” Although this may seem far too informal a way to accept a contract, that was not what the court decided and the seller was bound by the terms of the contract she had made by email.
In a further Court of Appeal case a year later, called Immingham Storage Company Ltd v Clear Plc (2011), the court held that a signed quotation sent by fax and returned by email created a legally binding contract.
Electronic signatures were first given a legal definition by the Electronic Communications Act 2000 but this has also been something that has been debated by lawyers. In the case of Lindsay v O’Loughnane (2010), the judge suggested that an email needs to “include a written indication of who is sending the email”. This might include signing off with your name, title or even informally with just your forename (based on the decision of the High Court in the case of Green (Liquidator of Stealth Construction Ltd) v Ireland (2011).
In a recent High Court ruling in the case of Neocleous & Anor v Rees (2019), an automatic email sign-off was proof of signature. Provided the automatic signature had the sender’s name on the email, this was considered enough to show an intention to enter into a legally binding relationship.
So with the law having developed to make it easier to enter into contracts, even with informal communication, what practical steps can be taken to avoid a nasty surprise agreement? There are two easy ways to protect from an accidental contract:
1 Add wording such as “subject to contract” to any email negotiations. There are several cases supporting the use of clear and prominent statements, say in the header or at the top of an email, in bold with the text “subject to contract”. Note: if this wording is hidden in a small general disclaimer, then it is unlikely to work as it would not be noticeable.
2. Make it clear to those outside a company exactly who has authority to enter into contracts. In theory, any staff member can potentially enter into a legally binding contract on behalf of a business provided it is reasonable for someone to assume that they had authority. It may be a case of training staff who do not have authority to state this clearly near the beginning of any discussions, whether these are discussions in person, in writing or by email.
The Law of Contract is included in ILSPA’s Legal Secretaries Diploma course. As a Student, you will learn about the definition of a contract, requirements of a valid contract, the terms of a contract and the remedies available for a breach of contract.