Contracting by accident - Emails
A binding commercial contract can be created in the simplest of ways.
For many types of contract, there is no need for a formal written document containing all the relevant terms signed and witnessed by representatives of the parties. All you need is for one party to offer to do something, such as supply goods or services, in return for a payment or other benefit and for another party to agree to that offer.
This means that contracts can be entered into verbally or by a simple exchange of text messages, emails or even WhatsApps etc.
Whilst this enables contracts to be entered into quickly and informally, it also carries the risk of parties entering into binding contracts without realising they have done so, without having clearly set out all the terms they intend to govern the agreement. There are many cases where business have found themselves the subject of a binding contract, even where no documentation had been signed.
The recent claim against Superdrug Stores Plc, a senior brand manager of Athena Brands Limited sent an email to a Superdrug employee recording that Superdrug would be placing an order for a new product line for 12 months on same basis as another product they were already supplying. The Superdrug employee responded in a brief email stating “Please go ahead”. Several months later, Superdrug stopped placing orders with Athena. Athena responded by suing them for £980,000.
Superdrug tried to argue that they were not bound by the contract, saying that the parties had not intended to create a binding legal relationship. They argued that the employee involved was not authorised to enter into a binding contract on their behalf. Both defences failed.
The Court ruled that a contract had been formed by the exchange of emails and that the employee was authorised to entering a binding contract on Superdrug’s behalf. In fact, the Court decided that the contract was so obviously binding they made the decision without the need for a full trial.
There are a number of lessons to be learnt from this case for any business negotiating contracts by email or other forms of messaging:
Make it clear in advance what needs to happen before your contract will be binding. If Superdrug had told Athena that a binding contract would not come into existence until there was a written contract in place signed by their respective directors it is unlikely they would have been sued.
Train your employees on the risks of entering contracts by accident. Identify clearly which employees are authorised to enter contracts on your behalf, how contracts should be negotiated and entered and ensure your employees notify any limitations on their authority to anyone they are negotiating with.
You should have your own terms of business and, where possible, you should insist contracts are entered on your terms.
Finally, note that not all types of contract can be entered into informally in the manner described above. For example, conveyances of property generally have to be in writing in and signed and witnessed deed.
If in doubt, always seek legal advice.
If you would like to speak to one of our contract law experts, click here.