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What Constitutes A Contract?

February 7, 2011

For any regular reader of this blog, you will be familiar with my general theme of ‘change’ (or often, my concerns over its apparent absence!).

A good example of our changing world is reflected in the findings of a recent UK court case, in which the judge has determined that a string of emails was sufficient to constitute a binding contract – and awarded damages in excess of $50m for non-performance.

Among the key points are the fact that there was no single document that represented ‘the agreement’ and there was no signature. In his summing up, the judge observed: “As to commercial good sense, it seems to me highly desirable that the law should give effect to agreements made by a series of e-mail communications which follow, more clearly than many negotiations between men of business, the sequence of offer, counter offer, and final acceptance, by which, classically, the law determines whether a contract has been made”.

Although the judge went on to say that he had been influenced by the fact that guarantees within the particular industry “are often negotiated and concluded by the sort of e-mail exchange seen in this case”, it is clear that negotiators and business-people must take increasing care to ensure that their true intent and extent of commitment is clear. With data suggesting that more than 80% of business-to-business contracts are now developed and communicated on-line, the potential for similar findings can only increase.

3 Comments
  1. Sterling permalink

    Offer
    Agreement
    Consideration
    Capacity of Parties to Contract
    Intent of the Parties to Contract
    Object of the Contract

  2. Florante C. Abaya permalink

    The foregoing court decision is indeed interesting.

    However, I am a little bit amazed that with the magnitude of the monetary value, there has never been an executed formal document, yet the court concluded that there is a binding agreement.

    I think the lesson learned from the above-mentioned case is that “at this stage of technological negotiation era, we must exercise prudence and know the boundaries of how are commitments are made and evolved”.

    Kudos to your article.

  3. haward permalink

    Tim

    your comment that “A good example of our changing world is reflected in the findings of a recent UK court case, in which the judge has determined that a string of emails was sufficient to constitute a binding contract – and awarded damages in excess of $50m for non-performance.” gives one a good idea of the strength of the commmon law and its ability to adapt to new technology without a change in principle. What the judge did was to apply normal principle , to ask if there was an intention to form legal binding relations and finding that there was to apply that to an analysis of the email traffic.

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