In a recent case, an exchange of emails was found to have created a legally binding contract, even though the related written agreement had not been signed.
‘George’ and ‘Brian’ each owned half the shares in their company and were directors. There was a shareholders’ agreement which provided that, if either of them became ill and unable to work for more than six months, the ill shareholder would sell his shares to the other. George became ill, and on his return it was agreed the shareholders’ agreement had been triggered.
A written agreement was negotiated under which Brian was to acquire George’s shares, but it was never signed. Brian began to run the business without any recourse to George. Later, the company secretary, on Brian’s instructions, sent George an e-mail confirming that Brian was willing to buy George’s shares on the terms of the draft agreement, and would George confirm that he was prepared to go ahead. George replied by e-mail that he was prepared to do so.
Brian later tried to back out of the agreement, claiming that he was not bound to buy George’s shares, as the draft written agreement was never signed. In court, the judge disagreed, saying it would defy commercial reality to say the parties intended not to be bound. There was nothing still to be agreed, and no suggestion that the negotiations had been subject to contract.
The lessons from this case are that parties who do not want to be bound by an agreement should expressly state that the agreement is ‘subject to contract’, and should be very careful what they send by email. They should also avoid carrying out its terms until the formal written agreement has been entered into. If in any doubt, make sure no communication is sent without it being approved by your solicitor.
For further information contact Mark Adams on 0191 232 8345 or email email@example.com
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