Can Emails Make A Binding Contract?
Can emails make a binding contract?
A lot of our clients regret sending an email offering something to another person thus potentially making a contract. In other words, can a set of emails make a binding contract per Australian law? Well the simple answer is, yes. The recipe for a binding contract requires at minimum 3 things, an offer, consideration and acceptance. The thing that really surprises most people is a signature is not required.
This is because the law of contract in Australia doesn’t discriminate between electronic communications and something signed on paper. Even verbal communication can be legally enforceable as a contract. This has its own set of requirements such as witnesses.
Sometimes courts have taken the view that conduct can amount to a contract being enforceable. For example, take a scenario where a law firm tells a client that if they continue to instruct them, that would act as a binding contract. Or a builder performs work, the client would need to pay for it.
Any promise of an exchange for a contract must also have ‘consideration’. Something must be offered in return for the good, service or counter-promise made by the other party. The other thing to bear in mind is consideration just has to be something of value but not necessarily money.
Further, consideration must be sufficient and real but not necessarily adequate. Courts will not try an inquire into the ‘adequacy’ of the consideration, i.e. they will not seek to measure the comparative value of what is being offered by the parties. This is known in law as the peppercorn principle as someone may agree to sell an extremely valuable object (e.g. a diamond) for a nominal consideration such as a peppercorn. The exception to this rule is a deed which does not require consideration.
So how do I protect myself?
If you have begun a negotiation of any kind via email but do not wish it to be considered a binding contract, you must clearly state in your emails that ‘no binding agreement is formed unless and until a formal contract has been executed’. If you do not add a disclaimer similar to the one the one above then it is possible a Court may find you had the intention to be legally bound in a contract.
Further, depending on the nature of the emails, a disclaimer may not be enough to avoid being legally bound. In the Queensland Supreme Court, the case of Stellard Pty Ltd v North Queensland Fuel Pty Ltd found that a binding contract for the sale of land had been made by email. Interestingly, both the offer email and the email accepting the offer referred to the offer being “subject to contract” and “subject to execution“. However, this was not enough to prevent the parties from being bound legally to a contract.
Courts view emails as a modern business tool to which parties can enter into contracts. Always make sure you are clear in your intention and disclaimers that you do not wish to be bound in a contract and pay attention to what constitutes a contract.
For assistance in writing, responding to, or recognising contracts, please contact us at Sharon Givoni Consulting.