Warning: Unsigned Contracts Can Be Binding

by Kidd Rapinet on April 7, 2009

Do you ensure all your commercial arrangements are set out in writing? If not now might be a good time to have a written agreement drawn up. Check you have standard conditions of sale, purchase, written agreements with consultants, suppliers, customers and the like. Long term distribution and agency agreements should ideally be in writing too and far too many of those doing business together as partners or shareholders fail to draw up a written partnership or shareholders’ agreement.

In a recent case the courts looked at unsigned contracts. A Mr. Grant and Mr. Bragg formed a company together but decide to abandon this when Mr. Grant was ill for some months. They had a draft written agreement over their shareholdings produced by a law firm. Grant objected to it but eventually by email said he accepted it, although nothing was signed.

The court said “Whilst there might have been scope for argument as to the terms (but not the price) on which those shares were to be acquired, that scope was put to rest when Mr. Bragg and Mr. Grant agreed to abide by the terms of the Dixon Ward Draft. What was needed on 30 January 2007 was mere regulation of the de facto position as it existed on the ground… Where parties are proceeding in anticipation of execution of a formal document then the normal inference will be that the parties will not be bound unless and until both of them sign that document. However, that inference will change if the facts change so that it can be objectively ascertained, on a balance of probabilities, that the continuing intention of the parties is, now, to be contractually bound immediately and not following formal execution of the document.”

In other words, if people act as if a signed contract were in place even though signatures were never placed on it, particularly if they have indicated by email that they agree, then they will be held to it by the law.

When Mr. Bragg made an offer to Grant to accept the draft contract after he had changed the locks on the company’s premises and shut Grant out of access to his company telephone and email… “Mr. Bragg had taken control of the Company and, effectively, forced Mr. Grant into resigning as a director (so taking all the benefit of Mr. Grant’s shares except the very shares themselves),” said the decision. “The e-mail of 30 January 2007 was a clear attempt to resolve a difficult impasse. Nowhere does it require Mr. Grant formally to execute the Dixon Ward Draft [the unchanged contract]. It merely requires him to accept the Dixon Ward wording. If he did, in my judgment a contract would be in place on the terms of the Dixon Ward Draft.”

If you would like us to draw up written contracts for you to protect your business in recessionary times call Philip Wild on 020 7024 8029.