(Co-written by Sophie Dipper, Trainee Solicitor and Emily Sadler, Associate)
Exchanges of emails can create a legally binding contract
Emails offer a quick and easy way to communicate and are used almost universally by all types of businesses. Yet care does need to be taken to prevent an informal exchange of emails amounting to the parties inadvertently entering into a legally binding contract.
Case Study
The recent case of Athena v Superdrug (2019) illustrates how easy it can be to enter into a commercial contract by email. The parties had been negotiating a sale and purchase. In the email exchange, Athena had asked Superdrug to confirm that a stated minimum order was being placed, to which an employee of Superdrug responded “Please go ahead with the below…”
Superdrug argued that a contract had not been formed because:
- the emails did not amount to a contractual agreement as the employee of Superdrug had not followed the company’s standard procedure for purchasing goods;
- there was no intention to create legal intentions; and
- the Superdrug employee did not have the authority to enter into a contractual agreement for the purchase of goods.
No doubt Superdrug was unhappy with the position as a) they were committed to buying a certain volume of product from Athena but also b) because such order was not on their own terms of purchase, most likely drafted in their favour.
Court Decision
The court sided with Athena and agreed that the email chain did amount to a binding contract. The employee of Superdrug had held themselves out as being authorised to make the purchase and Athena was not aware of the restrictions on the buyer’s authority.
James McNeil, Partner and head of our Banking & Finance Team wrote a blog entitled “Even emails and text messaging can constitute a legally binding agreement!” back in 2014 using a case back then Golden Ocean Group Ltd v Sagacor Mining Industries PVT Ltd and another [2012] EWCA Civ 265 as an example of an exchange of emails creating an enforceable guarantee.
4 elements which create a contract
This case is a useful reminder, of how easy it can be to enter into a legally binding contract – the basic principles of contract law dictate that a contract will be formed as soon as the following four elements have been satisfied:
- An offer has been made
- That offer has been accepted
- There is an intention to create legal relations between the parties
- There is consideration passing between the parties (e.g. a promise to supply goods in return for payment)
Remember that a contract does not need to be in writing and can be formed through an oral agreement or a course of dealings between the parties.
Contract law training
Businesses will benefit from ensuring staff are sufficiently trained in the basics of contract law if they have responsibility for making sales or purchases on the businesses’ behalf to ensure that they do not inadvertently enter into commercial contracts through the exchange of informal emails. Such training and ensuring that proper processes are in place will also help ensure that businesses are properly contracting on their own standard terms and conditions.
If you need any assistance with your terms of business or any other business contract, please contact Emily Sadler. We also offer bespoke contract law training for businesses.