Unsigned contract enforced
- John Deane
- Updated: Fri, 9th Dec 2016
An unsigned contract can be enforced. A party can accept the terms of a contract by its conduct. There are grey areas. We advise on those aspects.
Resolving a breach of contract dispute
In this case, we:
- Assessed the merits of our client’s position.
- Following that advice, brought a claim for breach of contract.
- Won the case, which entitled our client to its full costs.
- Ensured that our client could enforce the business contract, which would protect the future cash flow position.
Initial contract discussions
Our client, a plastic container manufacturer, brought a claim against a new distributor for breach of contract. The parties initially agreed a distribution contract. Our client signed the contract, and sent it to the distributor to sign.
The distributor amended the contract by extending the payment terms. The distributor sent our client a signed, albeit amended contract. Our client did not accept the revised terms and did not sign the amended contract.
Bringing a claim for breach of contract
The distributor failed to sell the containers, and stopped placing orders with our client. The distributor claimed no binding contract existed between the parties. Our client brought a claim for breach of contract.
The contract was for the supply of plastic containers for use in the food industry. It contained the following provisions:
The provision stated that our client would supply the first month’s delivery on extended payment terms. This allowed the distributor time to establish its business and improve its cash flow. The distributor amended this to three months.
3 years fixed term duration
The distributor would order a fixed minimum quantity of stock, every month for three years.
Annual sum payable in twelve monthly instalments
This amount would be set on each anniversary of the contract. It was a royalty payment for use of our client’s trade marks.
Question for the court: conduct amounting to acceptance
The court considered whether our client had:
- Accepted the contract through its conduct;
- Effectively communicated acceptance to the distributor.
The judge considered what our client had done in reliance of the contract. We confirmed our client had:
- Supplied the agreed minimum quantity of containers each month;
- Raised invoices for the delivered goods;
- Manufactured further goods to meet the distributor’s anticipated demand; and
- Invoiced the distributor for the monthly royalties’ payments.
In response to our client’s actions, the distributor had:
- Placed orders and taken delivery of the containers;
- Paid invoices for the royalty payments; and
- Created literature and a website page promoting our client’s brand name and product range.
We successfully argued that our client had accepted the modified contract. Acceptance was effectively communicated to the distributor as evidenced by its actions.
The judge’s decision
The judge found that notwithstanding the requirement for both signatures, our client had accepted the terms of the modified contract through its conduct. The other party had acknowledged this and received the benefits of our client’s performance.
The only uncertainty arising from the absence of both signatures was the precise date on which the contract was made.
Protect your business
If both parties don’t sign a contract, then it is possible to show both parties accept the contract by their conduct. Note that in this case it required Court action, which is expensive.
John Deane is a partner in the commercial team. John advises corporate clients on a number of business contracts, from franchising agreements to supply of goods and services agreements. Do get in touch with John if he can assist.