19 November 2009 | Douglas Mathie

A simple "go ahead" email pinged to a vendor could be a binding contractual agreement that would stand up in court. Douglas Mathie gives some clarity on contract formation

Email has become the key means of written communication for most of us. However, the speed and accessibility that make it such an attractive business tool can also cause problems in practice. A frequent source of difficulty from a legal perspective is the contractual effect of emails.

Two recent court decisions provided some food for thought on this. In the first case, the University of Plymouth denied it had made a contract with the European Language Centre by email. Offer and acceptance are crucial components of contract formation, and the court agreed with the university that the email chain did not contain either a formal offer to contract, or an unqualified acceptance of that offer.

In a contrasting case, however, a Scottish court held a contract had been formed by email, and worryingly for the supplier, it had been formed before the supplier's standard terms were introduced. This case involved the purchase by sign manufacturer Baillie Estates of a printing machine from chemicals company DuPont (UK). Both parties accepted a contract existed for the purchase of the machine, but the crucial point was when that contract had been created, and therefore whether or not it incorporated DuPont's standard terms.

In the email correspondence pertaining to a possible sale, DuPont sent Baillie an email with an attachment containing its commercial proposal (product description, pricing and delivery details). Baillie responded with an email saying "go ahead". A couple of days later DuPont sent on its standard terms and an invoice for the machine.

The court decided the contract was formed when Baillie sent the "go ahead" email. That is, the commercial proposal was an offer, and the "go ahead" email was an unqualified acceptance of that offer. As a result the DuPont standard terms were too late and did not form part of the contract.

Interestingly, DuPont's email footers stated that its emails were not intended to have contractual effect, unless DuPont expressly stated otherwise. DuPont did not try to rely on that wording in court, but the judge said the footer would not have prevented the formation of a contract because it referred to the email and not to its attachments.

This approach would not necessarily be followed by courts in England but it does highlight the risks. So the conclusions of the cases are:

- You don't need a written document with two ink signatures to have a contract. As long as there is an offer and an acceptance, there can be a contract. Offers and acceptances can be made by letter, email or even verbally.

- Contracts may be formed by email earlier than you expect.

- When negotiating a contract by email, introduce standard terms as early as possible.

- Consider rewording standard "no contract" email footers so they cover attachments.

- If you don't want to be bound until a formal, written contract is signed, consider adding "subject to contract" or equivalent wording to negotiation emails and to proposal documents and other attachments.

* Douglas Mathie is a partner in the technology, information and outsourcing group at Brodies