You will likely engage in numerous formal contract negotiations as a business owner. Some of them will be successful, whilst others will not. Whichever way, it is usual practice for businesses to exchange correspondence and draft contracts marked \u2018subject to contract\u2019. This article will explore the use of \u2018subject to contract\u2019 correspondence and whether any documentation marked \u2018subject to contract\u2019 could be binding on your company.<\/p>\n\n\n\n
This legal phrase confirms that the sender does not intend the contents to form a legally binding contract. Instead, it seeks to demonstrate that the document or correspondence is in draft form. Thus, it does not contain any legally binding assurances regarding the contents of a future contract.<\/p>\n\n\n\n
Suppose your business sends a draft contract to another company for their comments and the contract is not marked \u2018subject to contract\u2019 (or \u2018without prejudice subject to contract\u2019). Accordingly, there is a risk that the other party may later argue that it is a legally binding agreement.\u00a0 This can even be the case where the contract is marked \u2018draft\u2019.<\/p>\n\n\n\n
Let us say that your retail business is negotiating with a greeting card company. The initial negotiations centre on the company providing 100 cards per week to your Liverpool store for a three-month period. The purpose of the deal is to ascertain demand for those greeting cards and discuss an initial fee of \u00a31 per card.<\/p>\n\n\n\n
You put forward a draft contract with these terms<\/a> in place and mark the contract as \u2018draft\u2019 and \u2018subject to contract\u2019 in capital letters on the front cover. Before signing, you decide that the deal is not worth the \u00a3100 per week fee and withdraw. However, the card company is keen to force the deal through and start legal action.<\/p>\n\n\n\n Could they successfully argue that the draft contract was a binding agreement? On these facts, and because of making clear that the contract was put forward on a subject to contract basis, it is very unlikely to be held as binding on the parties.<\/p>\n\n\n\n However, in the absence of any \u2018draft\u2019 or \u2018subject to contract\u2019 markings, it would be unclear what a court would do. This is especially so if the party had delivered the initial weekly shipment of cards.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n