Unsigned contract enforced
An unsigned contract can be enforced. A party can accept the terms of a contract by its conduct. There are grey areas. Gannons advises on those aspects.
Our client, a plastic container manufacturer, brought a claim against a new distributor for breach of contract. The parties had 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. Following this, the distributor sent our client a signed, albeit amended contract. However, our client did not accept the revised terms and did not sign the amended contract.
Resolving contract breach with an unsigned contract
In this case, we assessed the merits of our client’s position. We then brought a claim for breach of contract to the court, which we won. As a result, this then entitled our client to recoup their full costs. We also ensured that our client could enforce the business contract, which would protect the future cash flow position.
Bringing a claim for breach of contract
The distributor failed to sell our client’s plastic containers and stopped placing orders with them. The distributor claimed they were able to do this because no binding contract existed between the parties. Hence our client brought a claim against them 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 and/or 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 unsigned 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 there is an unsigned contract between two parties, 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.
John solves commercial problems for SMEs and their investors. It is said that he is unbelievably practical and seasoned in finding the right solution without too much fuss. He has an established reputation in the technology, art and media industries.