When you are starting out in business it can be easy to fall into the trap of believing that you have a ‘done deal’ when you are relying on a quick email to form a contract. Likewise, some multinationals have been caught out with commercial solicitors advising that a member of their procurement team has entered into a contract through an email exchange. It is a dangerous world out there and one where start-ups and established businesses need to know the ground rules on if and when an email exchange can become an enforceable contract.
Jump to:
- Can an email form a legally binding contract?
- A case study on contracting by email exchange
- Is a promise made in an email legally binding?
- Are admissions made in an email legally binding?
- Do you want emails to be legally binding?
- Do email signatures provide protection?
- Will saying ‘subject to contract’ offer me protection from an email exchange becoming a contract?
- Protecting your business with email contract safety tips
Can an email form a legally binding contract?
What makes a contract, a contract? That isn’t a rhetorical question as it is one our commercial contract solicitors have advised a range of businesses on. Some companies want the answer to be that there is no contract flowing from an email exchange whilst other business owners have acted to their detriment believing that they have a binding contract with a third party.
Contracts don’t normally have to be in writing but for the purposes of commercial litigation an email is classed as writing under the provisions of the Interpretation Act 1978. Whilst an email exchange can form a legally binding contract that doesn’t mean every email exchange a company employee engages in is going to result in a business being contractually obliged to a third party. It all depends on the content and context of the emails.
Commercial solicitors say there needs to be five elements for a contract to be legally binding:
- An offer – The offer must be specific, complete, capable of acceptance and made with the intention of being bound by acceptance. An offer is generally revokable and capable of termination before acceptance by the other party.
- The acceptance of the offer. Acceptance must be an unqualified assent to an offer to create an enforceable contract and must not vary the terms of the offer. A contract will normally be deemed to be accepted by email on the recipient’s receipt of the email.
- Consideration – This means some type of payment.
- An intention to be legally bound by the contract. In commercial situations there is a rebuttable presumption that the parties intended their agreement to be legally binding.
- Certainty as to what is agreed by the two parties to the contract.
The application of the five principles applies whether a contract is verbal, written or digital as the operation of the law doesn’t depend on the method used or whether the agreement is a supply of goods agreement or other type of contract.
There is no higher threshold to cross to prove that an email exchange amounts to a contractual relationship in comparison to a formal document. However, with an agreement prepared by a commercial contract lawyer, it is easier to show that there was an intention to create legal relations and there should be certainty as to the terms of the contract. The only exemption to the ability to contract by email is where legislation prevents it. For example, the sale of land or the appointment of a trustee can only take place through the execution of a deed.
Whilst it is possible to include the five contractual elements in an exchange of emails that does not necessarily mean it is wise to do so. That’s why it is best to be aware of the potential to create contractual relations before hitting the send button or before actioning an email thinking you have entered a contract when you haven’t.
A case study on contracting by email exchange
Take the case of the retailer who gets an email enquiry from a potential commercial customer. There then follows an exchange of email. The retailer believes the communications are a contract and orders the bespoke product from the manufacturer they source their products from. However, the commercial customer says their emails were just a detailed enquiry with no commitment to purchase as they weren’t sent an order form to make it ‘official’. The manufacturer says there is a contract with the retailer to purchase the bespoke goods. The retailer is caught in the middle and is unlikely to be able to sell the goods to another buyer. Whether or not there is a legally binding contract with the customer, the retailer is contractually bound to pay the manufacturer as there is a contract that is independent of the email exchange between the retailer and email enquirer.
Commercial solicitors are frequently told that ‘the law is not fair’. Most would agree, but for the retailer it is a commercial decision to look at the cost of litigation with the customer to prove that the five contractual elements were met in the email exchange as against the likely costs of paying the manufacturer to make an item that the retailer does not have a buyer for. In this type of scenario some manufacturers would make a goodwill gesture to the retailer to agree a price reduction or other concession, as otherwise the retailer might later decide to terminate the manufacturing contract if the termination clause allows for ending the contract on notice.
Commercial contract disputes should be about the commercial realities rather than a slavish look at the five contractual elements if the reality is that the customer would not have the means to pay a court award or the publicity would inflict reputational damage on the retailer, way beyond the cost of the manufactured goods.
Each situation, and the email exchange, has to be looked at on its merits and if you are satisfied that there is a binding contract by email exchange you then need your commercial lawyers to work out the cost benefit ratio of pursuing enforcement of the contract.
Is a promise made in an email legally binding?
Whether a promise made in an email is legally binding is all down to the context. At the time you write an email it may seem like an informal chat but to the receiver of the email it may constitute the acceptance of an offer and a formal commercial contract. Promises made in emails can be legally binding provided that there is sufficient certainty in the email exchange to amount to a contractual relationship.
Commercial solicitors develop an art of reading through an email exchange to check if the five contractual elements are present. It is however an art not a science. That is why there is caselaw on what email exchanges amount to legally binding promises and contracts.
Take the phrase, ‘I am going to buy your gadget’. That could amount to an offer provided there is an intent to create legal relations and there is sufficient certainty. The words probably won't amount to an offer if the retailer sells more than one gadget with a range of bespoke options (such as colour choice and upgrades). In that scenario the words may be an expression of interest, rather than an offer, unless the email exchange develops so that all purchase options are covered and the five contractual elements of contract are present.
What about incentives to buy that are found in an email exchange? Are they legally binding? Again, it all comes down to context. If your email correspondent says ‘I promise you that you will love the gadget’ then that is sales pitch. However, if the promise is that ‘the gadget will perform twenty revolutions per minute and change colour from purple to pink’ and the gadget doesn’t then the customer can say they relied on those email assurances. The retailer’s words could amount to either a representation about their gadget or a statement of fact, depending on the precise wording in the email. The wording in the email is the key to not only whether there is a contract but also the precise terms of the contract, as it may not be enough to supply the gadget if the seller made a statement of fact in the email exchange that the gadget would revolve and change colour and the item fails to meet the promised specifications.
Are admissions made in an email legally binding?
Many email correspondents will continue their email exchange if there is an issue, such as the buyer complains that the item is not fit for purpose as it is not as described, it arrived damaged or late, or the seller says the buyer failed to pay for their purchase. Commercial solicitors are therefore asked if the ongoing email exchange amount to admissions that can be used in any future commercial litigation proceedings. For example, for misrepresentation or non-payment. The answer is a qualified ‘yes’.
Any email exchange can be used to support your case provided that the email exchange is not written on a ‘without prejudice’ basis. It is therefore essential to check the status of an email exchange as comments made about a product can make a real difference to the success of any commercial litigation. For example, if the buyer claims that the seller made a statement of fact to the effect that a gadget would change colour whilst revolving at high speed, the seller can rely on the buyer’s email in reply saying ‘Very funny, if only’ as that appears to show that the purchaser was aware that the sender of the email was engaged in banter and was not making a statement of fact or representation.
If you are engaged in a contract dispute it is sensible to locate all emails and to get them reviewed as the email exchange may help you settle any claim and avoid litigation or prove your case in court.
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Do you want emails to be legally binding?
The reality is that most businesses need to engage with either their consumers or clients remotely to move with the speed that we all demand nowadays. Your business can still engage in email exchanges but you need to be clear, from the outset, whether you want your emails to be legally binding or not. If the answer is no, then when the emails conclude with an agreement, at that stage you could send a formal contract for approval by the other party so they are clear that on signature of your contract they are legally bound.
You may think that there is no way that your business could end up with a contract by email that you did not agree to but the case of Athena Brands Ltd v Superdrug Stores Plc [2019] EWHC 3503 (Comm) (18 December 2019) is a salutary tale.
Athena sued Superdrug alleging Superdrug had entered into a contract with them by email to purchase specified quantities of cosmetic products over a twelve-month period, with the contract having a value of around £1.3m to Athena. Superdrug argued there was no email contract as the company had a standard practice of only entering into commercial contracts through the issue of purchase orders, and therefore their employee could not have committed the company to purchase set quantities of stock from Athena. The Athena employee asked for confirmation that orders were being placed by asking ‘If you could drop me a note to confirm all the above ASAP that would be great, I shall then be in a position to push the button at this end’. The reply came back ‘please go ahead.’ Those three simple words resulted in the court finding that there was a contract.
Superdrug tried to argue there was no intention to create legal relations in the email exchange as their employee did not have the authority to commit the company. The court concluded that the employee was held out by Superdrug as a buyer and no restrictions on the employee’s authority were notified to Athena. Accordingly, Athena obtained summary judgment in the commercial litigation.
There are various ways that you can try to ensure that an email exchange is not legally binding, such as:
- Expressing your email as ‘subject to contract’ in the email header.
- Indicating that any email exchange is subject to your standard terms of business and to acceptance of those terms.
- Stating at the end of each email that the email exchange does not amount to a legal contract.
Ensuring that email exchanges do or do not amount to a legally binding contractual relationship (depending on your company preferences) comes down to a combination of IT strategy, staff training and auditing. Our commercial solicitors can review your procedures to ensure that they are as watertight as possible so your business is not left with an unexpected contract or what you thought was a binding commitment but is no more than an email exchange.
Do email signatures provide protection?
Email signatures do provide some protection but commercial solicitors warn that as many types of contracts can be entered into verbally you do not actually need a signature to enter into a binding contract, either verbally or by email. You therefore can’t assume that if there is no signature there is no contract.
The law on the use and evidential standing of email signatures is contained in section 7 of the Electronic Communications Act 2000 . The Act says an electronic or email signature that is included or logically associated with an electronic communication is admissible in evidence in relation to questions on the authenticity or integrity of the communication or data.
Recommended practice on email signatures is contained in the 2016 Law Society and City of London Law Society practice note entitled ‘Execution of a document using an electronic signature‘ . In January 2021 the Law Society published a questions and answers paper on the use of electronic signatures in commercial matters.
The 2016 electronic signatures practice note emphasises that electronic signatures can take a variety of different forms, such as:
- An email correspondent typing their name into an email containing the terms of a contract; or
- An email correspondent electronically pasting their name into a contract that forms part of an email; or
- A person using a finger, light pen or stylus and a touchscreen to write their name electronically in the appropriate place as a signature to the contract or pressing a website icon.
Commercial solicitors advise that when it comes to signatures the court held in the 2019 case of Neocleous v Rees [2019] EWHC 2462 (Ch) that an automatically generated email footer containing the name and details of the sender amounted to a signature for the purposes of section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989. The defendant argued the automatic signature footer at the end of their email did not amount to a signature for a contract for the sale of land. However, the court held that setting up an automatic email sign-off and specifying the rules applicable to its inclusion in emails was a conscious decision of the sender and amounted to a clear intention to associate the writer with the email and to authenticate or sign it.
Will saying ‘subject to contract’ offer me protection from an email exchange becoming a contract?
You will find that some business owners label every email as ‘subject to contract’, whether or not the email content warrants the title or header. If you do not want to enter into a legally binding contract through email exchange then the words ‘subject to contract’ will help but won't necessarily guarantee that a contract won't be formed. That is because in some scenarios a contract can be formed through conduct.
An example of this is where an email exchange takes place between buyer and seller and an offer is made. The recipient of the email replies ‘yes, subject to contract’ but they dispatch the item to the seller. The posting of the goods could amount to acceptance of the contract by conduct. However, you can't assume that all conduct will amount to acceptance of a contract as the case of BSkyb Ltd & Anor v HP Enterprise Services UK Ltd & Anor (Rev 1) [2010] EWHC 86 (TCC) (26 January 2010) demonstrates. A memorandum of understanding was agreed and one party acted in accordance with its terms. When a dispute occurred, the question arose whether there was a binding contract through conduct. The court said no as the memorandum of understanding was stated to be subject to contract and a contract had not been formed through the action or conduct of one party.
Protecting your business with email contract safety tips
No commercial solicitor can sit by the computers of all business client employees to ensure they avoid inadvertently entering into a contract through an email exchange, nor can any IT programme or training completely protect your business. However, these email contract safety questions and tips are a start point to protect your business from either believing you have a contract in place when you don’t or alternatively inadvertently ending up being contractually bound:
- Authority - Do your employees understand the limits of their authority to commit the company to a contract by email? Do you have a clear company policy in place with regular training updates and audits and appraisals? Are emails from third parties sent to an individual or to a group email address for the purposes of supervision and review? For more information read out article on the basics of contract formation authority.
- Record keeping - In the unfortunate event that you do end up in court over a contract dispute it is important to retain the full email exchange as the email chain may assist you to prove or disprove the existence of a legally binding contract.
- Subject to contract - Do you have a standard requirement to include the wording ‘subject to contract’ in the header of any negotiation email? Is it your company policy to require supervisory sign off before the status of an email exchange moves from subject to contract-to-contract status?
- Email response policies - Whilst informality is one of the advantages of email communication there are dangers as a quick email saying ‘yes, all agreed’ may result in a binding contract. Any email needs to be considered in the context of the longer email exchange so the email reply needs to be carefully looked at in light of the earlier email exchanges. It is better to delay a reply rather than shoot off a response just to ensure that the inbox is cleared before the end of the working day. Sometimes company policies requiring specified response times can be counterproductive.
- Watch the wording - Do you have a series of standard company email footers? If so, do the footers make the status of the sender clear and clarify the extent of their authority to contract. For example, a sign off that says the sender is a ‘sales negotiator authorised to enter preliminary discussions that are subject to contract and that any contractual relationship is on the firm’s standard terms of business contained on the company website’, with a link to the web page attached to the email.
- Too many cooks - Is more than one person from your company engaged in the email exchange with the third party? If so, they may not be fully aware of the earlier email content and unaware that their response has the effect of creating a contract. Sometimes it is better for there to be a delay in an email response rather than confusion by using more than one email author.
- Standard terms of business - If your company has standard terms of business how are those terms incorporated into any email exchange? For the other party to be bound by your terms you will need to have made them aware of the terms by, for example, referring to them and attaching them to an email or getting the email recipient to click through to the terms contained on your website. Terms and conditions which are not immediately visible to the other contracting party will be effectively incorporated into the contract if reasonable steps are taken to bring the existence of the terms and conditions to the notice of the other party before the contract is formed.
- Contract termination - If a contract is entered into inadvertently by email all may not be lost if the contract is subject to your terms of business and your standard termination clauses allow you to terminate the contract on notice without the other party being at fault or in breach of contract. For more information on terminating commercial contracts read our article on terminating a contract. Alternatively, you can safeguard your business with standardised contractual terms on contract dispute resolution in the event of a contract dispute.
- Learn from mistakes - It is inevitable that mistakes will occur when either you or your staff are busy. The key is to ensure that you, and your staff, learn from the mistakes and training and policies are updated.
- Keep up to date - In this digital age email best practice and commercial litigation case law are fast-developing areas. Your business needs up to date legal advice and to understand how the latest developments in IT or the law could help your business. That way you can conduct a cost benefit analysis of whether additional software or work to your website or standard contractual terms would better protect your business. From more Information on the benefits of refining your contracts read our article Why you should regularly update your commercial contracts.
- Take early legal advice from commercial solicitors if a contract dispute arises from an email exchange - Some business owners assume that if something is email related it must be ‘small fry’ in comparison to a dispute over the intricacies of a solicitor prepared formal contract, but that isn’t necessarily the case. In addition, early legal intervention can nip a dispute in the bud if the commercial solicitor is able to give clear advice on whether the court is likely to say the email exchange amounts to a legally binding contract. For practical information on resolving contract disputes take a look at our article Contract dispute resolution: an overview.
