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Does a failure to sign on the dotted line mean your contract is unenforceable?

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A contract contains a term stating that it is not binding until both parties have executed it.  If one party fails to execute, is it unenforceable? The recent case of Reveille Independent LLC v Anotech International (UK) Ltd [2016] considered  this issue. Although not a construction case, it is of key relevance to construction contracting parties.

The facts

Reveille claimed that it had entered into a binding licence agreement with Anotech for certain licensing and other arrangements relating to the TV show, Masterchef US.  Following negotiations, Anotech returned a signed version of a deal memo which stated that it was not to be binding on Reveille until signed by both parties.  The deal memo was intended to be replaced by detailed long form agreements, but negotiations broke down.

In July 2013, Reveille wrote to Anotech treating the contract as repudiated, contending that the deal memo constituted a binding contract.  Anotech’s main argument was that the deal memo it had executed was not signed by Reveille and so there was no binding contract between the parties.

The High Court found that there was a binding contract based on the deal memo, since Reveille had communicated acceptance of the contract by conduct.  Anotech appealed.

The decision

The appeal was dismissed.  The Court of Appeal held that the High Court was right to focus on whether there were clear and unequivocal acts constituting acceptance by conduct.

Applying the classic analysis of offer and acceptance, the Court of Appeal held that the deal memo sent by Reveille was an offer.  When Anotech returned the amended form, that was a counter-offer which required acceptance by Reveille. The provision that the deal memo would not be binding on Reveille, unless it signed it, was clearly for Reveille’s benefit.

The explanation for the existence of this provision was that the deal memo was almost certainly Reveille's standard form contract.  By not signing, Reveille as offeree was waiving a prescribed mode of acceptance, set out for its benefit.  That was effective so long as there was no prejudice to Anotech as offeror.  The only prejudice to Anotech was the commercial uncertainty as to whether it was bound by the deal memo.  The Court of Appeal felt that this paled into insignificance when Anotech was receiving all the benefit of Reveille's performance of the memo's terms.  Objectively, Anotech could not have thought that it was prejudiced when from the outset it actively facilitated Reveille’s performance under the deal memo.

Therefore, the High Court was right to focus on whether there were clear and unequivocal acts on Reveille's part, which Anotech knew about, that would constitute acceptance by conduct of Reveille’s counter-offer.  The Court of Appeal felt that there was clear evidence of such acceptance by conduct, in which moreover Anotech was closely involved.

Conclusions

The key lesson from this case is that even if a contract provides that it is not binding until both parties have signed it, if one of the parties fails to sign it, the contract may still come into existence.  This will depend upon whether the conduct of the parties amounted to clear and unequivocal acts constituting acceptance.

This is an important reminder for parties involved in construction projects, where it is often the case that - despite best intentions - contracts are not executed until work is under way.  Obviously this is not an ideal situation.  Uncertainty as to the terms by which the parties are bound ramps up the potential for disputes down the line.  Much better to spend a little time at the start making sure that contracts are executed than pay the price later on if problems arise. 

 

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