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Court Allows Contract to be Binding Despite not Being Formed as Prescribed

on Wednesday, 06 July 2016.

Reveille Independent LLC v Anotech International UK Limited, Court of Appeal

The Court of Appeal has allowed a contract to be formed without signatures, despite the terms of the contract requiring it to be signed in order to be binding.

The Facts

Reveille and Anotech were discussing a Deal Memo. The draft Deal Memo stated that it needed a signature by both parties in order to be legally binding. Anotech amended and signed the draft Deal Memo.

However, it later claimed that there was no binding contract because Reveille had not signed it. Reveille performed its obligations as if the draft Deal Memo applied, but the relationship between the parties broke down.

The Court of Appeal ruled that Reveille had accepted the terms of the amended Deal Memo due to its conduct. The Court examined the law and stated that a party is able to waive a supposed requirement in a document to accept the contract in the stated way if its behaviour shows that it has been deemed to have accepted the terms of the contract anyway, as long as this does not prejudice the other party. Here, the parties' conduct showed that they behaved as if the contract was binding and therefore it was.

Comment

This should be a timely reminder to parties who are negotiating a contract not to assume that it is only binding when the document has been signed by both parties. Contracts can be formed in various ways and there usually does not need to be a signature.

Even where the parties say in a draft agreement that it is not binding until it is signed, that may not be the case, as happened here. In addition, the cases have also shown that using the words 'subject to contract' may not help either, if the parties have effectively acted as if the contract is binding.


For more information, please contact Paul Gershlick on 01923 919 320.