Email contracts can be binding - don't get caught out

Email offers a quick and easy method of communication and is now almost universally used by all types of organisations. It is, however, important to realise that what may appear to be an informal method of communication may inadvertently enter an organisation into legally binding contractual arrangements, says Anthony Young, partner at law firm Veale Wasbrough Vizards. 

Contracts are at the heart of any business - from contracts with landlords, to the terms on which an organisation engages its own suppliers and staff - and they set out the legal relationship between, and the obligations on, the relevant parties. 

To form a contract under English law, five elements need to be present:

The contract does not need to be in writing. An oral agreement or a series of dealings between parties may also form a legally binding contract. 

Where a firm regularly deals with the same party it is easy to build up a chain of emails going back and forth. A lengthy email chain could start with a simple enquiry but quickly develop into a legally binding contract.

Since the coming into force of the Electronic Communications Act 2000, an 'electronic signature' has been admissible as evidence if it is incorporated into, or is logically associated with, an electronic communication, but there has been some debate as to what suffices as an electronic signature. 

In a recent case, the  judge suggested that email needs to "include a written indication of who is sending the email", suggesting that an automatic appearance of the sender's name or email address in the 'from' field and an automatically generated email signature block would suffice as an electronic signature. The more prevalent view, however, which is supported by other cases and by the Law Commission, is that there must be some voluntary intention to add the signature. 

A string of cases suggest that binding legal contracts can inadvertently be formed by parties through pre-contract emails. If the intention is to negotiate terms before entering into a formal contract, it is important that the emails make this clear, e.g. by prominently stating in the header or at the top of the email in bold or underlined text 'subject to contract'. 

The inclusion of a 'subject to contract' statement creates a presumption that the emails are not intended to create a legally binding contract, but this presumption can be overturned by other statements or by the conduct of the parties. Including a disclaimer is unlikely to work as it is insufficiently specific, and not noticeable.

Any member of staff could potentially enter into a legally binding contract on behalf of an organisation by adding their names to, or by voluntarily adding to, or omitting to remove their email signature block from the end of an email before clicking 'send'. If it is reasonable for the recipient to assume that the member of staff had delegated authority to enter into the contractual negotiations, the emails are likely to be binding even though the member of staff may not have actual authority to do so. 

Logically, there is no reason why contracts cannot be formed using text message, instant messaging or forms of social media such as Facebook, Linkedin and Twitter, particularly where social media is being used for messaging. There is likely to be case law on this issue in the future, particularly as social media becomes a more established mechanism for conducting business.

The overall message is to be careful how you use email. Writing and sending an email without thought can have serious consequences.