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Legally Bound: When is a Contract a Contract?

Legally Bound: When is a Contract a Contract?

Published: 26 March 2014

There is no escaping the fact that we live in a digital age. Digital technology has revolutionised the way we communicate, not just socially, but professionally. Email is the main modi operandi for most professionals these days and "e-contracts" are commonly sent between practitioners, and between clients and practitioners.

Understandably some clients are confused – we regularly hear "We don’t have a contract - we just spoke on the phone and I agree to buy Y at a price of "£X"", or "Those terms don’t apply to me - I didn’t sign anything, we just agreed everything by email."

So when is a contract a contract? A contract is simply "… an agreement giving rise to obligations which are enforced or recognised by law…" (Guenter H. Treitel, The Law of Contract).

Therefore a "simple" contract can be in writing, can be oral, or can be implied. So you have most likely entered in to a legally binding contract if the following elements are present:-

  • offer - a party offers to do (or not to do) something e.g. sell goods;
  • acceptance – the party to whom the offer is addressed accepts the offer e.g. accepts the price and agrees to purchase the goods;
  • intention to create legal relations - both parties to the contract intend the contract to be legally enforceable/binding
  • consideration - in England & Wales the parties must promise to do or give something in exchange for the promise, e.g. pay money for the goods.

Deed you mean that?

In the case of real estate transactions and deeds, Section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 sets out the formalities required when an individual executes a deed. Section 1(3) provides:

An instrument is validly executed as a deed by an individual if, and only if:

  • It is signed either: i) by him in the presence of a witness who attests the signature; or ii) at his direction and in his presence and the presence of two witnesses who each attest the signature
  • It is delivered as a deed by him or a person authorised to do so on his behalf

The leading case is Koenigsblatt v Sweet [1923] 2 Ch 314, where the Court of Appeal held that a contract in writing could be effectively altered after signature by a party provided that the person making the alteration had the authority of the party in question to do so (or, if he did not, if his act was subsequently ratified).

However a case in 2008 [R (on the application of Mercury Tax Group and another) v HMRC [2008] EWHC 2721] commonly known as “Mercury” led to discussions about the effectiveness in English law of using pre-signed signature pages, and virtual signings and closings where signature pages are exchanged by e-mail.

In Mercury (a case about search warrants granted for a tax investigation), the High Court found that the signature on an incomplete draft contract (or deed) could not be transferred in order to execute a complete and amended “final” document if the changes were significant enough to argue that the final draft constituted a different document.

Depending on the nature of the type of document it is possible to:

  • return the entire document and the signed signature page by email;
  • returning only the signed signature page by email;
  • create a pre-signed signature page in advance of finalising the document.

When can you do what?

With the types of simple contracts discussed above, all three options are acceptable. That is the same for Guarantees (both stand alone or contained in simple contracts).

In Real Estate Contracts or Deeds (a deed is…..) then Option 1 is the only permissible option.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.