There is a mistaken assumption that an agreement that is not signed is not an agreement at all and cannot be enforced. However it is common commercial practice to enter into agreements without signature, and so we highlight the key issues to consider when entering into agreements. For example it is common place to accept agreement terms by clicking on a button or completing a tick box when entering a website or social media platform, or purchasing goods online – there is no need for a signature. Even when one enters a carpark there will be an acceptance of binding terms of agreement for entry. However the complexities of unsigned agreements require further analysis in the context of commercial dealings.
Leading up to a Commercial Agreement
Quite often commercial parties will correspond with each other in negotiating and determining the terms of an agreement and either:
(a) prepare and draft a formal written contract to reflect the terms;
(b) sign the formal written contract or both parties do not sign the formal contract;
(c) the parties perform their obligations or do not commence dealing with each other.
Is there a binding agreement in the various scenarios?
We must first look at the basics of contract law. While there must exist fundamental elements of contract such as an offer, acceptance and consideration, there also requires an intention of the parties to create a legal obligation. This last element will be considered further in this article.
There is no written contract
There does not necessarily need to be a written agreement. If the parties have reached finality in arranging all of their key terms of the bargain, and there is no express term which stated that the terms are only binding on a signed formal contract, then there may be a binding agreement. However if there are still exists disagreement as to some of the key terms then an agreement will not have been made. An expectation that certain aspects of the agreement will be elaborated upon will not be fatal to the agreement existing.
The written contract is not signed by both parties
The parties may have completely agreed upon all the terms of their bargain and intend no departure of these terms but nevertheless have made performance of the deal conditional upon the signing of a formal document. In this scenario where the formal contract has not been signed, the Courts will likely determine that an agreement exists and order specific performance of the contract. This may even be the case where the price has not yet been determined. As mentioned above, if fundamental terms have not yet been agreed then an agreement will not exist. However if there is a clear intention of the parties not to make a concluded bargain unless and until a formal contract is executed then an agreement will not exist. The intention must be clear that a party has reserved their right to withdraw from the bargain before the signing of an agreement even though the terms of the written agreement reflect a parties intended terms.
Indications that an unsigned agreement is enforceable
The key indicators that an unsigned agreement is enforceable include:
• all of the essential terms of the agreement had been reached and the bargain was not subject to further negotiation;
• the issue by one party of an unsigned final contract may be accepted by the signature of the other party;
• the parties have acted as if they intended that the agreement was binding.
Steps to ensure contract is only binding on execution
If you wish to ensure that an agreement is not binding until a formal contract is signed, we recommend that:
• you expressly make it clear in your negotiations that there is no binding contract and no agreement of terms until a formal contract has been presented to you and signed by you;
• in your communications to the other party do not state that you agree to the terms being proposed or put to you;
• you do not act or conduct yourself as if the terms of the party have been agreed and that you are acting in accordance with or consistent with those terms;
• if you are unclear as to whether an unsigned agreement will be binding, immediately communicate to the other party that any terms of offer under the agreement are expressly withdrawn by you.
Director – Corporate and Commercial
A+F Commercial Lawyers offers specialist legal advice to assist in the establishment, expansion, operation and divestment and acquisition of businesses and corporate groups.