Contract Basics series #1: Working without a written contract
Welcome to the first of our series of simple briefings aiming to highlight some of the more common issues relating to contracting…
Published 29 June 2015
Welcome to the second of our series of simple briefings aiming to highlight some of the more common issues relating to contracting.
Beware of communications sent for negotiation purposes only unexpectedly becoming an enforceable contract.
There is often an assumption that a contract is not legally binding until it is in writing and signed by the parties – wrong! As a result, organisations make offers, counter-offers and informally negotiate the terms of proposed agreements every day over the phone and via email without realising that they may have already entered into a binding contract.
Case law shows that even those limited types of contracts, which are subject to special rules that require them to be in writing and signed (for example, guarantees), can be created by a series of relatively informal negotiating emails - even those containing 'text' speak' - provided the parties intend to be bound; it is not necessary that all material terms are contained in a single, stand-alone document. As for the signature requirement, the Courts have held that an electronic signature at the bottom of an email exchange concluding the contract is sufficient, and that a first name, initials, or perhaps even a nickname would suffice.
A contract is ordinarily formed where certain key elements – offer, acceptance, consideration and intention to create legal relations – are present. Although acceptance of the terms of a contract is usually indicated by way of signature it is important to remember that this is not the only way. For example, the parties can indicate their agreement to a contract by simply going ahead and performing their obligations under it.
If you do not intend for correspondence such as email exchanges to have binding legal effect until the execution of a final written contract then appropriate precautions need to be taken from the outset to make this clear.
If you are in any doubt as to the risks you may be taking in exchanges of correspondence forming part of your pre-contract negotiations do seek legal advice. Of course, if we can help you with any of the issues raised above, please do not hesitate to get in touch.