Deal memos and contracts: Pretty Pictures v Quixote Films

With the quick-fire thrust and parry of email becoming increasingly popular as a means of communication, the possibility of inadvertently creating a binding contract is an ever present danger. However, a recent case which came before the High Court has reinforced the basic legal principle that if the parties only intend to be bound by signature of a formal legal document, then an affirmation of the principal terms of the proposed agreement in email correspondence will not suffice for that purpose.

In Pretty Pictures v Quixote Films the question came before the court as a preliminary issue. The claimant, a French film distributor, alleged that a binding contract had been concluded with the defendant, the owner of a film called ‘Lost in La Mancha’. Over a period of two or three months the claimant and the defendant’s sales agent had corresponded by email culminating in an email from the claimant setting out his ‘revised offer’. This, in effect, was a bald statement of the principal terms: minimum guarantee, term, territory, rights granted and income splits. There followed further negotiations but ultimately an accord was reached and the defendant’s sales agent sent an email saying ‘the deal is approved… you will be receiving the contract by email before commence tomorrow.’

During the course of correspondence the claimant had asked on a number of occasions for the defendant’s sales agent to provide him with a ‘deal memo’. The defendant’s sales agent had not responded to this and the judge found that whilst there was no particular understanding as to whether or not a deal memo or a long form agreement was to be concluded, it was nonetheless their common intent that some form of written contract was to be drawn up and that they would not be bound unless and until it was signed. That a long form agreement was subsequently issued and that negotiations ensued was further evidence of this intent.

Whilst it may come as a relief to some to know that their acceptance by email of an emailed outline proposal will not necessarily create a binding agreement, this case also serves to provide a timely reminder of the fact that, if it is indeed the parties’ intention to create a binding agreement by email, then they need to say so at the time.

Bulletins are for general guidance only. Legal advice should be sought before taking action in relation to specific matters. Where reference is made to Court decisions facts referred to are those reported as found by the Court. Please note that past bulletins included in the Archive have not been updated by any subsequent changes in statute or case law.