Legally bound without signing on the line

25th February 2011

A recent Court of Appeal case highlighting the dangers of businesses and their employees being unaware of contract formation procedures has implications for firms throughout the region says a leading commercial solicitor.

Amy Hylton, a commercial specialist at Higgs & Sons says that the recent case of Immingham Storage Company Limited v Clear Plc brings to light the dangers and high costs of getting the process wrong.

"In this case, the two companies had exchanged a number of emails regarding the storage of certain products," explains Amy.  "The storage company had emailed a quote to the customer containing various details such as the start date for storage, duration and price.  The quotation also specified that a 'formal contract would follow in due course'.

"The customer never signed the formal contract and they did not use the storage space.  The storage company argued that a contract had been formed upon signature of the quotation and therefore their invoice for storage services should be paid."

The Court of Appeal concluded that there was a contract despite no formal agreement being signed because a) the quotation was not expressly made 'subject to contract', b) all substantial terms had been agreed in the quotation and c) there was an intention to create legal relations.

Amy explains: "It is vitally important that the people negotiating sales and orders are aware of the vast range of issues that affect contract formation and incorporation of terms. 

"It is a common belief that a contract has not been formed until the written agreement is signed.  However, in law as this case shows, this is not always the case."

 Amy suggests that a full review of a business' order and sales process would be a beneficial way of ensuring that the processes being used are not going to trip them up when it comes to contract formation. "A simple check may be all it needs to save a business a lot of money.


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