In House Freethinking: Have you signed on the dotted line?

Most people are probably of the view that signing an agreement indicates that they intend to be bound by it. But what if the agreement has not been signed? Can a binding contract still come into existence?

This has been the scenario in a number of recent cases considered by the courts and is a useful reminder that agreements can be binding even though they might not be signed by all parties and, instead, remain as attachments to the last email exchange! However, it also reinforces the importance of making it clear during contract negotiations that you do not ,intend the terms of an agreement to be binding until they are agreed.

The consequence may be that a binding contract comes into force unintentionally as the Bieber case below demonstrates.

Good Practice Points

• It can become easy to forget to chase up on signatures when a contract is finally agreed as often you might be juggling many and already be on to the next one! To avoid any unwanted and potentially costly claims from third parties that an agreement is not binding simply because they have not signed it, make sure that someone is responsible for ensuring that it has been signed.
• Although the use of the label “subject to contract” is not foolproof, its use creates a strong presumption that you do not intend to be bound by the contents of a document. Whilst the draft contract itself might be marked appropriately, it is also useful to get into the habit of marking related email exchanges “subject to contract”. With email being the most common method of written exchange, it is possible for the courts to infer that “subject to contract” protection is lost if the content of emails, for example, demonstrate that the parties intended to act in a different way.
• In agreeing to settle any contractual disputes, ensure that written exchanges of correspondence setting out the terms of any settlement before the settlement agreement itself is prepared are marked “subject to contract”.

Reveille Independent LLC v Anotech International (UK) Ltd (2015)

Cookware manufacturer Anotech International planned to pay television company Reveille over $1m for a licence of the MasterChef US brand and promotion of its cookware in the US show. The parties started negotiating a Deal Memorandum in 2011 with the intention that this would be replaced by a detailed long form agreement.

Anotech signed a version of the Deal Memorandum with a handwritten amendment ‘Branding Conflict with Gordon Ramsay to be concluded’ (a reference to the fact that Gordon Ramsay had started appearing appearing in QVC’s online marketing under the strapline ‘The Master Chef’).

Anotech showed its products at a Chicago homeware show using the MasterChef brand in its promotional materials. A draft long-form agreement was exchanged, and filming started, but was never concluded. Reveille sent invoices and Anotech’s managing director accepted that the amounts were due. However, the project turned out to be a disaster with no sales ever made. Anotech wanted to avoid paying and argued that the Deal Memorandum was not a binding contract.

The court considered a series of questions, revolving mainly around whether a binding contract had actually come into force.

Was a signature required in order for the contract to be accepted?

The draft Deal Memorandum had not been signed by Reveille. It expressly required signatures from both parties for it to become binding, but this provision was stated to be for Reveille’s benefit alone and consequently Reveille could waive the entitlement. However, Reveille could not simply decide after the event to ignore the requirement – it would need to show that it had in fact waived the requirement of signature, which it could not. In any event even if the Memorandum had been signed, the written acceptance was not notified to Anotech.

Was acceptance communicated by conduct?

Clearly some work may be undertaken in anticipation of an agreement being reached without this amounting to acceptance of the terms of an agreement. However in this case, as Reveille had integrated the products into the television episodes as required, it had accepted the offer made in the Deal Memo by its conduct. Anotech had acknowledged that it was liable to pay for those integrations, and so had recognised that the deal had become binding.

Was the branding conflicts term a condition precedent to the agreement?

The judge did not accept Anotech’s argument that the branding conflict term was a condition precedent which required Reveille to stop Mr Ramsay selling his own range of cookware products in the USA. Both sides knew from the outset that Reveille could not prevent Mr Ramsay from doing so provided he did not infringe its intellectual property.

So Anotech was obliged to pay up, at least those instalments falling due in the opening stages of the project.

A Ltd v B Ltd (2015)

A similar conclusion was reached in this case, where a buyer failed to persuade the High Court that it had avoided having a contract with the supplier by not signing a draft contract that included the words “accepted [buyer]” on the signature page and required the parties to return signed copies of the contract as the prescribed mode of acceptance.

The court held that the buyer’s signature was not a mcondition of the formation of the contract. Even if the offeror sets out a prescribed mode of acceptance, it is open to him (but not the offeree) to waive that requirement. In addition, the court concluded that the buyer had unequivocally accepted the seller’s offer by his agent’s conduct in asking for prices to be set according to the mechanism in the contract. The buyer found himself liable for a bill of almost US$7 million, for a year’s supply of cotton he said he never intended to buy.

Bieber v Teathers Ltd (in liquidation) (2014)

The case concerned the settlement of complex court proceedings brought by 220 claimants for £20 million.

Following a failed mediation, the parties’ solicitors made various offers, and counter offers, to settle the case before incurring the next set of fees in the trial process. The solicitors reached a settlement figure by email which was then to be recorded in a consent order and approved by the court. The parties were unable to agree the wording of the order. The crucial question was whether the figure arrived at via the email exchange constituted a binding contract or whether there was to be a two stage process involving agreeing the detailed written settlement agreement.

The court held that, despite the underlying litigation being complex, settlement of the dispute was not.

The parties had reached a concluded agreement on the terms of the email exchange which was not explicitly or implied made “subject to contract”. The phrase “Noted with thanks” gave no indication that there were other issues to be considered, and was sufficient to conclude the contract. Simply put, a figure had been agreed and was to be paid within 28 days.

As a result, the defendant was bound to a settlement which omitted certain key features which it had hoped to include, including an indemnity by the claimants against third party claims.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.