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In the Electronic Age: Beware of Entering into Contracts Without Intending to

Jan 4, 2021

It is of course well known that a contract can be made orally without any letter/order form/email in sight. The difficulty with oral contracts is generally proving what the agreed terms were. If it all goes ahead to the satisfaction of both parties, the oral contract can be made and carried out perfectly happily. It is when things go wrong, that trying to rely on an oral contract gets very risky.

Contracts don’t just have to be in a single bespoke document, signed by the parties, dated and containing all of the agreed terms. A Contract can consist of a series of documents/emails/correspondence that together set out the agreement reached.

Email correspondence and now texting can also be tricky in the context of contracts if parties take an overly relaxed view about the consequences. This is not just casual conversation in the commercial setting. If you are not careful, a contract can be entered into with an exchange of emails and be binding even if one party did not quite appreciate that. The Courts have long since worked on the presumption in a commercial relationship that there is the intention to create a legal relationship. It is not absolute, in that you can always argue that you did not intend to do so, but it requires strong evidence on the part of the person claiming that.

That potential risk is undoubtedly higher in the current COVID climate with more people working remotely, under less supervision and with fewer of the checks and balances that would be apparent in the formal office environment.

If your business requires a formal Order Form or Purchase Order to be completed before it will regard that as a contract – then be very clear in the course of the email correspondence when discussing what you can and cannot do for the potential customer; that a contract only comes into existence once those steps have been completed.

If you are going to have an email system that automatically populates any email going outside the organisation with a sentence that makes it clear no contract will be made until a Purchase Order has been signed off etc – then don’t hide that in the small print somewhere in your email footer. If you have to go hunting for it with a magnifying glass; you will get very short shrift from the Court if you try and rely upon it later.

Do the people that you give authority to negotiate contracts really understand the importance of using the term “subject to contract”? There have been plenty of Court decisions that are clear that if the term is used when contract negotiations are underway – it protects against a contract being inadvertently entered into.

Not everyone you email, or text, will have any recognisable authority to bind the business into a contract. If you are dealing with e.g. the Contracts Manager and in the course of the emails there is an offer and acceptance that is clear enough to amount to a contract, you will be entitled to rely upon it. If however you have been emailing the “Warehouse Junior Packer” when you would normally be dealing with the “Warehouse Buyer“, it will be clear to a Court that you had no real expectation that the junior person had any authority to agree a contract with anyone.

Sometimes people who have entered into a contract inadvisably, say they made a “mistake” and hope that might be a basis for having the contract invalidated.

The law of “mistake” is however more concerned with whether a contract can be enforced or not and the Courts are very reluctant to unpick a contract on the grounds of mistake. There is a whole body of Court decisions dealing with the legal meaning of “mistake” and what the Court will and won’t do and this article is not going to attempt to cover that.

What is clear is that the Courts are not concerned; if there is relatively equal bargaining power in a commercial setting; with whether one party has entered into a bad or disadvantageous contract. Providing the parties freely entered into it, the Courts are very reluctant to interfere.

If you need advice or assistance on a problem relating to the above then please contact us at drteam@herrington-carmichael.com

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

Frankie Tierney

Partner, Disputes and Claims

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