An unsigned contract is often thought of as being harmless. It is a common belief that if a written contract is not signed, it cannot govern an agreement between the parties named on it.
Surely the lack of a signature would suggest that the parties had not yet reached the point where they wished to be bound? However, where evidence exists to the contrary, for example where the parties have acted in accordance with the contract, this is not always the case. While every case will depend upon the individual facts, it is important to be aware that a written contract does not always need to be signed by both parties to be legally binding. This blog takes a look at the rules around unsigned contracts and examines the Court of Appeal case of Reveille Independent LLC v Anotech International Limited to see where the law stands today.
An unsigned contract – the starting point
A contract is a legally binding promise by one party to fulfil an obligation to another party in return for “consideration” i.e. something of value. A basic binding contract, whether written or oral, must comprise four key elements. These key elements are offer, acceptance, consideration and intention to create legal relations. Acceptance is a final and unqualified assent to an offer. It is made in response to an offer and must correspond exactly with the terms of the offer to be enforceable. Usually, a lack of signature on a contract would suggest that a party did not wish to be bound and had therefore not accepted the offer. However, whether a contract is signed is only one factor for the courts to consider when deciding whether or not the parties to a contract intended to be bound. The courts will look at all the evidence relating to the intention of the parties, including their conduct.
Acceptance by conduct may make an unsigned contract binding
Although it is generally considered that acceptance must be communicated to the offeror to be effective, conduct may sometimes be considered as acceptance. For example, where a supplier does not communicate acceptance of an order, but it delivers the goods ordered and requests payment anyway, this will generally be deemed as acceptance. Conduct will only amount to acceptance of an offer if it is clear that the party did the act in question with the intention of accepting the offer; they must implicitly accept the terms. In the case of Brogden v Metropolitan Railway, for example, the House of Lords concluded that, in a situation where the parties had acted in accordance with a draft unsigned contract for the delivery of consignments of coal, there was a contract on the basis of that draft. As stated by Steyn LJ in G Percy Trentham Ltd v Archital Luxfer, “the fact that a transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations.” It should be noted, however, that there are some situations where a contract does have to be in writing to be legally enforceable. Common examples of this include a contract for the sale of land, a transfer of shares, or an assignment of intellectual property rights.
Reveille Independent LLC v Anotech International (UK) Limited (2016)
The case of Reveille Independent LLC v Anotech International (UK) Limited (2016) concerned a dispute over whether there was a binding contract in place between Anotech, a UK manufacturer of cookware, and Reveille, a U.S television production company. In the contract, Reveille agreed to permit the integration and promotion of Anotech’s cookware products into three episodes of its television series as well as grant a license to Anotech for certain US intellectual property rights. The parties began negotiations in January 2011 and on 16 February 2011 Reveille sent a “deal memo” to Anotech’s managing and sole director setting out the relevant terms. This deal memo stated that “it would not be binding on Reveille until executed by both Licensee and Reveille”.
Following further negotiations, on 28 February 2011 Anotech returned a signed version of the deal memo to Reveille, with handwritten amendments and additions. It was intended that this deal memo would be replaced by detailed, long form agreements however negotiations broke down and in July 2013 Reveille wrote to Anotech treating the contract as repudiated.
The judge at first instance concluded that by March 2012 Reveille was performing its obligations under the deal memo and Anotech knew this. He concluded that Anotech’s amended and signed offer, as set out in the deal memo, was accepted by conduct by Reveille thus a binding contract was in place. In May 2016, Anotech appealed this decision. The Court of Appeal stated that the High Court judge was right to focus on whether there were clear and unequivocal acts on Reveille’s part to constitute acceptance by conduct of Anotech’s counter-offer. The judge did not identify a date when the contract came into effect, but stated that the various acts on Reveille’s part, of which Anotech was well aware, led to a binding contract on the terms of the deal memo. Anotech’s conduct itself, for example its acknowledgement in emails that it had to pay Reveille, was also consistent with the existence of a binding contract. Reveille waived the provision that there would be no binding contract in the absence of its signature on the deal memo, and there was no prejudice to Anotech. Accordingly, the case was dismissed.
The case of Reveille Independent LLC v Anotech International (UK) Limited serves as an important reminder that an unsigned contract may still be legally binding. It also demonstrates the fact that a prescribed mode of contract acceptance can be waived by conduct. Therefore, the signature of both parties to a written contract will not always be a precondition to the existence of contractual relations, even where the contract explicitly states that it is. When deciding whether or not a contract has come into existence between commercial parties in negotiation, the court will be keen to preserve certainty and give due attention to what it considers to be the reasonable expectations of honest, sensible business people.
As you can see from the above, an unsigned contract is not as harmless as it may first seem. The Court of Appeal decision in Reveille Independent LLC v Anotech International (UK) Limited should be a timely reminder to parties who are negotiating a written contract not to assume that it is only binding when the document has been signed by both parties. If you have any questions about an unsigned contract or about contract law more generally please contact Neil Williamson.