Is a contract binding if not signed by both parties?
The coronavirus pandemic led many businesses to examine and review their supply chains, their contractual arrangements and their ways of doing business on a level of detail that few had ever had to carry out previously.
A recent issues and one which applies not only following the pandemic but generally, is a question of whether a party has a contract when a document has not been signed. Everyone knows that with some limited exceptions, such as sale of land, contracts can be made other than in writing. Where a document has not been signed, parties are all too ready to abandon claims.
The reality is however even if parties believe they were only involved in negotiations to conclude a contract, a contract might still be in place.
How do I know if my contract is valid?
Even where a party may think no deal has been done, there is still a chance that a deal might have been done, depending upon what the parties said and often, more importantly, what the parties actually did.
No one will dispute that it is much clearer when a document has been signed setting out all of the express terms of the contract. However, across the world, contracts are regularly concluded with written documentation recording those following only some time afterwards, if at all when parties contact their solicitors.
The general principle is simple - whether there is a binding contract between the parties and, if so, the terms are dependent upon what the parties have agreed.
That is not a question of what the parties actually think, it’s more what was actually communicated via words or conduct. Where that leads to the conclusion that the parties intended to create legal relationships and be bound, a contract will exist.
The basics of a legally binding contract
This can apply even where an agreement is incomplete. Terms that would be described as being ‘essential’ may have not even been considered, but in reality the critical elements have been agreed.
To take one example, the Supreme Court recently allowed an estate agent to recover a commission agreed only orally between parties. That may not seem surprising.
However, going further, there had not even been an agreement as to what would trigger the payment of the commission. In this case the court was extremely commercial and simply noted that a commission would of course usually be payable from the proceeds of any sale and proceeded to give effect to the contract.
Of course a court will not force parties to reach an agreement if the parties have not gone far enough to have made a contract. However, where parties proceed on the basis that they have reached a binding agreement, rather than simply agreeing to agree something in future for example, it is right that the law should provide a remedy.
Ultimately however, even if a contract cannot be established, a remedy can. Where, for example, a party provides its services in anticipation of a contract finally being agreed, and one is not, law of unjust enrichment will provide a protection. In short, a party cannot be unjustly enriched at another’s expense if the relevant requirements are met.
Review your existing contracts
As parties reconsider the stages that they did, or did not reach, and the expenses they did or did not incur, as well as crucially how they conducted themselves, more and more will realise that they do have a contract in place, even though they do not have a signed piece of paper in their hands.
As the law catches up with business practice it’s likely there will be an increase in claims; with a remedy to be provided.
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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert