We all know the saying, a gentleman’s word is his bond, but is it enough to do business on a handshake and a promise, and when can an agreement be interpreted as a binding contract?
For a binding contract to exist, there are five fundamental principles;
- intention to create legal relations
Contracts are best in writing, but it is accepted that they can be entirely based on oral agreements. Even so, all five fundamental principles must be present.
The importance of certainty in a contract, specifically an unwritten contract, has recently been illustrated in the case of Cooper v Dnata Catering Services Ltd  EWHC 2216 (Comm).
In this case, the claimant (En Route International Ltd) agreed with the Emirates Group services unit to supply snack boxes for flights. There was no formal written contract in place, but the catering company claimant said there was an agreement for a three-year supply beginning in 2014, which was terminated early in 2016. The judge rejected this argument because the implication was not strong enough that it was ‘obvious’ to both parties.
The claimant sought to rely on email correspondence with the defendant in which the arrangement was discussed: Judge Jonathan Klein refused to accept that the email correspondence provided certainty on the contract because there was no price yet agreed, which is a fundamental element.
The claimant countered by arguing that there was an understanding between the parties (in email) that the price would be ‘reasonable’ and that this should be sufficient to consider there being a formal contractual agreement. The judge rejected this, saying, ‘such an agreement cannot be saved as a contract by the implication of a term that the price to be paid for each box was to be a reasonable sum’.
This case outlines the importance of certainty between parties and the strengths of having written terms in place. A little time spent on ensuring your contracts are robust and meet the needs of the business can save a lot of time and money later.