In Reveille Independent LLC v Anotech International (UK) Ltd(1) the Court of Appeal found that a binding and enforceable contract subsisted between parties to a 'deal memo' on the basis that the parties had, by their conduct, acceded to its terms, even though the memo provided that it would not be binding until signed by both parties and the signature of one of the parties was missing from the memo.
The case is a reminder that parties should be attentive to the contractual status of their relationship in the pre-completion phase of any agreement; it is possible to activate an incomplete contract by conduct, with the result that a party can find itself bound by promises which it had assumed it did not agree to.
Claimant Reveille Independent LLC was a US corporation producing television programmes, including the cookery programme MasterChef US. Defendant Anotech International (UK) Limited was part of a group of companies manufacturing and marketing home cookware utensils under the name 'The Cookware Company'.
In January 2011 the parties entered into negotiations for a licensing agreement. The proposal was for Reveille to integrate and promote The Cookware Company's products in three episodes of MasterChef US, and to license Anotech the right to use the MasterChef brand on its products in the United States and Canada.
On February 16 2011 Reveille sent a deal memo to Anotech containing relevant terms. The memo was in Reveille's standard form and named Anotech as the licensee. The text above the signature box stated: "This Merchandising Deal Memo shall not be binding on Reveille until executed by both Licensee and Reveille." It was envisaged that its terms would be replaced at a later date by a series of long-form integration and merchandising agreements.
On February 23 2011 Reveille sent an email to Anotech concerning a number of matters relating to the deal. Later that same day, Anotech sent an amended version of the memo to Reveille. On February 24 2011, following internal discussions at Reveille, a revised version of the memo setting out the amendments was sent to Anotech for signature. Following a further series of communications between the parties, Anotech sent to Reveille a signed version of the deal memo, which included a further round of amendments. However, Reveille did not sign the memo.
In early March 2011 and in accordance with the memo, Reveille incorporated Anotech's products into the production of MasterChef US and Anotech started using the MasterChef brand to advertise its products. Negotiations in relation to the long-form agreements contemplated by the deal memo also continued in parallel; however, the agreements were never completed and the negotiations subsequently broke down. Reveille then sent an invoice to Anotech for $300,000 in respect of an 'integration fee' due to it under the terms of the deal memo. While Anotech initially represented that it would pay this fee, it did not in fact do so, with the result that Reveille treated the contract as repudiated and issued proceedings in the Commercial Court for the debt and damages for breach of contract.
Anotech sought to defend the claim on the basis that no binding contract had come into existence, relying on the absence of Reveille's signature on the deal memo and the express term that the agreement would not be binding until it was signed by both parties. The Commercial Court disagreed, finding that Reveille had accepted the contract by its conduct and as a result had waived compliance with the signature term, which was in any event incorporated into the deal memo for Reveille's benefit.
Anotech appealed, contending that the judge could not properly have concluded that a binding contract existed. Anotech argued that nothing could be clearer than Reveille's express requirement for a signature – a provision that had been specifically designed to avoid the risk of being informally bound. As Reveille had plainly stated that only a signature would be good enough, its acts should be construed as conduct in anticipation of a contract being concluded.
In a relatively short judgment, the Court of Appeal began by providing a succinct overview of the rules of offer and acceptance which bore on the resolution of the appeal:
- An offer may be accepted by conduct as well as by express assent, but only where that conduct evidences, on an objective analysis, a clear and unequivocal intention to accept the terms of the offer.
- It is possible to accept an offer on terms set out in a draft agreement that is drawn up by the parties, but never actually signed.
- If a party has a right to sign a contract before being bound, it is open to it to waive that requirement and conclude the contract without insisting on signature.
- If a signature is the prescribed mode of acceptance, an offeror will be bound if it waives that requirement and acquiesces in a different mode of acceptance. Where signature as the prescribed mode of acceptance is intended for the benefit of the offeree and the offeree accepts in some other way, that acceptance should be treated as effective, unless it can be shown that the failure to sign has prejudiced the offeror.
- A draft agreement can have contractual force, even where the parties have not complied with a requirement that to be binding it must be signed, if essentially all the terms have been agreed and their subsequent conduct indicates this. However, the court will not reach this conclusion lightly.
- Subsequent conduct of the parties is admissible to prove the existence of a contract and its terms, although not as an aid to its interpretation.
In applying these principles to the facts, the court found that the memo sent by Reveille on February 16 2011 amounted to an offer. The amended memo returned by Anotech on February 28 2011 was a counteroffer which required acceptance by Reveille. The provision that the memo would not be binding on Reveille unless signed was clearly for Reveille's benefit and had been included as part of Reveille's standard form. By declining to sign, Reveille – as offeree – was waiving this prescribed mode of acceptance. That waiver was effective as long as there was no prejudice to Anotech. The only such prejudice that had been identified was uncertainty as to whether it was bound by the memo and that uncertainty paled into insignificance where Anotech had received the benefit of Reveille's performance. Indeed, Anotech had actively encouraged and facilitated Reveille's performance.
It was therefore necessary to consider whether there were clear and unequivocal acts on Reveille's part to constitute acceptance of the counteroffer by conduct. The court found that there was clear evidence of such acceptance in which Anotech had been closely involved and from which Anotech benefited. For example, Reveille had approved Anotech's request to deploy the MasterChef brand, integrated Anotech's products into its television programmes and proceeded to treat Anotech as one of its licensees. Anotech had also clearly behaved as if it were bound, including facilitating Reveille's performance of its obligations and continuing to negotiate in relation to the long-form agreements that the deal memo contemplated would replace it (the long-form agreements themselves pre-supposed that the deal memo was a legally binding contract).
As to the date on which a binding contract had come into effect, the court concluded that this was around March 12 2011, when the recording of MasterChef US had begun. Reveille's conduct after that date did not constitute acceptance, but was instead evidence that it believed a binding contract to be in place.
This is a paradigm case of the often-difficult interaction between commercial behaviour and classic contract law principles. There are many fact situations where some degree of pre-contractual performance can occur, whether by way of preparation for entering into the main agreement or the parties assuming that the final terms can be agreed at some later point. It is therefore important that parties are certain about the contractual status and terms of any pre-contract conduct or performance. As in this case, a party's conduct can breathe life into an otherwise incomplete agreement in a way that overrides any technical execution mechanics, if that conduct clearly and objectively evidences an intention to be bound by the contract. In such situations, a party may expose itself to claims for breach of contract or otherwise find that a term that was left to be negotiated or was not finalised cannot be enforced, because a different version of the contract was deemed to be accepted by the parties.
For further information on this topic please contact Greg Pooler or Andy McGregor at RPC by telephone (+44 20 3060 6000) or email (email@example.com or firstname.lastname@example.org). The RPC website can be accessed at www.rpc.co.uk.
(1)  EWCA Civ 443.
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