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

Was acceptance communicated by conduct?

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)Bieber v Teathers Ltd (in liquidation) (2014)

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.