Parties who negotiate contracts but choose not to sign them when the moment comes usually expect not to be bound. However, the Courts are finding binding contracts have arisen in such circumstances. The latest example is Rowena Williams (as executor of William Batters) v Gregory Jones (25 February 2014).
A deal in principle was done, a number of conditions were agreed including taking the advice of an accountant, a contract was negotiated and finalised, the accounting advice was taken but Mr Batters died before signing the contract.
So – bad luck for the counterparty to the contract? No - the Court decided that, at the date of Mr Batters’ death there had been no outstanding issues between the parties. The terms of the agreement were clear, no conditions remained to be fulfilled, no-one had expressly described the agreement as subject to contract. The formal signature of the contract was consequently not necessary.
Many cautious commercial negotiators would find this surprising. They would not expect to be bound until they had actively signed up to the contract – what after all is the point of the signature otherwise?
The lesson to take is to make sure that it is clear that any contract you are negotiating is marked or at least described as ‘subject to contract’ until you are absolutely ready to bring it into force. You cannot take this for granted.
In passing it is worth noting a similar situation arising in 2013 in Newbury v Sun Microsystems. An offer to settle a claim was made and accepted including the statement “such settlement to be recorded in a suitably worded agreement.” Issues emerged during the drafting of the agreement and no document was ever signed. The Court nonetheless concluded that a binding agreement had been reached. Reference to a settlement agreement was not enough to make the offer dependent upon signature of such an agreement. The offer was not ‘subject to contract.’
Commercial parties must be aware of not accidentally concluding contracts before they intend to do so (for example before full internal approval and a detailed expression of the terms of the contract have been obtained).