backIn March 2012, the UK Court of Appeal confirmed an earlier High Court ruling that an enforceable contract and guarantee can be created under English law by a series of email exchanges.
In this case, Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another [2012] EWCA Civ 265, a shipping case, the parties exchanged many emails in which they agreed a series of amendments to the terms of a standard charterparty and a related guarantee. Each email exchange either accepted or rejected the other parties' points until all were resolved and the parties were in agreement. Despite the parties expecting their emails to be drawn up into a formal document (and, in fact, a formal contract was drawn up, but never executed) the court found that the email exchange evidenced an agreement on all material points and created a binding contract and guarantee.
Here is a brief round-up of some of the English law rules relating to the creation (and amendment) of binding contracts:
Is a binding contract only created if it is in writing and signed?
No. Most contracts do not need to be signed or even be in writing.
There are exceptions - a few specialist contracts such as contracts for the sale of land and guarantees. Section 4 of the Statute of Frauds 1677 stipulates that a guarantee must be in writing and signed by the guarantor or a person lawfully authorised by it (or a memorandum or note of the agreement signed by the guarantor).
Even if a signature is required, it does not have to be a wet ink signature. "Signature" means voluntarily making one's mark on a document. Stamping a document, placing photocopies of signatures on an agreement or even inserting one's name at the bottom of an email could all be considered signatures.
The Court of Appeal in Golden Oceanconfirmed that if a person puts his name on an email to indicate that it comes with his authority and he takes responsibility for its contents, then it will be a signature for the purpose of the Statute of Frauds. This would be the case even where only the first name, initials, or possibly a nickname is used. In contrast, in N Mehta v J Pereira Fernandes S.A [2006] EWHC 813 (Ch), said the judge decided that an email header inserted automatically would not satisfy this test and constitute a signature.
Note that sometimes only documents with wet ink signatures are allowed for registration purposes. Examples in the UK include transfers of real estate, leases, charges, or other deeds that have to be registered at the Land Registry or Companies Registry in order to take effect or to have legal protection.
If a document or email is marked "subject to contract", does this prevent a binding contract being created?
The inclusion of the phrase subject to contract creates a legal presumption that negotiations are continuing and more work is to be done before a binding agreement is reached and so is a good way to prevent contracts being created accidentally.
However, if parties begin to perform a contract before the formal terms are agreed then this presumption may be overturned, resulting in a contract being formed even though all the terms have not been agreed.
Although not always commercially possible, the safest approach is to finalise an agreement before starting work.
Can a contract be formed even if all the terms are not in one document?
Yes, contractual terms can be spread among several documents.
In the Golden Ocean case, the terms of the charterparty and guarantee were contained in multiple emails sent over the course of a month. The court confirmed that, even in the case of guarantees, there is no requirement that the "agreement in writing" be in a single document or even in a small number of documents.
Also, remember, contracts (except for those exceptions that are required to be in writing) can even be part written and part oral.
When the terms of an agreement are not in one place, it can make it difficult to know what has been agreed. To avoid the problem that contract terms exist outside the final version of the agreement, always ensure that written contracts contain an entire agreement clause .
Amending contracts and deeds And finally, all of the above can apply equally to negotiating variations to contracts or deeds already signed.*A written contract can be amended by another written contract or (unless it is one of those contracts required by law to be in writing) orally. The key legal requirement to make an amendment binding is that both parties must give new promises (fresh consideration) for the variation or alternatively, the amendment can be executed as a deed.
*A deed can be varied by deed. There is also a rule of equity that a deed can be amended by a simple contract, provided that there is consideration. As we have just learned - beware - an exchange of emails can be a contract in writing and email sign-offs can amount to signatures.
Can this be overridden by a clause in a contract requiring a variation to take a particular form (e.g., in writing) and not being effective if made orally or by email)?
There is no direct legal authority that this approach would work. Even if the clause were effective, a party could argue that there had first been an oral or email agreement to amend the variation clause, followed by an oral or email agreement to amend the contract.
Also, there is authority that such a clause will not protect a party against being bound by a variation if it has engaged in conduct that amounts to a clear and unambiguous representation that it agrees to the variation, it has conducted itself so that a reasonable man would have believed it was meant that he should act on it, and the other party to the contract did, in fact, act on the representation.