LEGAL MATTERS: Sealing contracts with a mouse click
A binding contract requires four key elements: an offer on certain terms, an acceptance of those terms, consideration in the form of value promised to another, and an intention to be legally bound. If these components exist, it is possible for many commercial contracts to be entered into without formality.
In the right circumstances, even an oral agreement in an informal setting, say over dinner, may result in a legally binding contract.
Certain contracts have to comply with specific formalities to be legally enforceable. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (‘the 1989 act’) provides that “a contract for the sale…of an interest in land can only be made in writing and only be incorporating all of the terms which the parties have expressly agreed...” The act also requires that “the documents incorporating the terms…must be signed by or on behalf of each party to the contract.”
A recent case has considered whether or not an automatically generated electronic signature would satisfy these requirements.
In this case, the parties agreed to exchange a parcel of land to resolve a property dispute. The contractual terms were set out over a series of emails between the parties’ solicitors, a purchase price was agreed and the litigation was settled. Handwritten signatures from the parties were not obtained.
The defendant subsequently refused to comply with the contract and argued that it was unenforceable as it has failed to comply with the formalities set out in section two of the 1989 act.
The judge found that the provisions of the 1989 act did not require a handwritten signature, and held that the solicitor’s electronic signature on his email was adequate. The inclusion of the manually typed words “many thanks” indicated that the solicitor was relying upon the automatic signature to sign his name.
The judge did not want to allow the defendant to rely upon “a serendipitous technical defect in formality to renege upon a deal reached” and granted the claimant’s request for specific performance.
This case demonstrates how fact-sensitive cases can be. In order to avoid the risk that a contract may be created inadvertently or prematurely during the course of negotiations, it is advisable for parties to use the phrase “subject to contract”. This indicates that, until a formal written contract is signed, the parties do not intend to enter into a contract.
For further help or advice contact Simon Lockley, partner, in our dispute resolution team on 0114 228 3297 or [email protected]