Bookmark and Share
Previous article

News Articles

  • Can a contract be enforced if it is not signed? The Court of Appeal reverses a previous ruling.
  • By Liz Fletcher
  • 15/03/2010 Make a Comment
  • Contributed by: Jonesy ( 1 article in 2010 )
Be Grateful Today!
Click to receive your Free Guide
The Case

The Court of Appeal considered the previous decision of the High Court in this case (Court report, 19 March 2009), which concerned whether a contract that was never signed could still be enforced.

The case involved a dispute regarding the enforceability of a shareholders’ agreement buy-out, which had been triggered following Graeme Grant’s long absence from work because of illness. Grant was away for more than six months, which triggered a clause stating Russell Bragg would be able to buy Grant’s shares. Bragg’s representative emailed Grant to confirm that Bragg would purchase the shares on the terms of the draft contract and requested confirmation of Grant’s acceptance – which Grant did through email.

After some email correspondence, Bragg later claimed that he was not bound to buy the shares because the draft contract was never signed. Grant issued proceedings to enforce the sale of the shares against Bragg on the basis that a binding contract was in place. The High Court said that the email exchange formed a contract that bound the parties, even though neither of them had signed the document itself and the original intention was the contract would be signed. It said the contract was formed through the offer and acceptance of the emails.

But the Court of Appeal has now overturned the original decision of the High Court, establishing that the first instance judge had erred on the facts. Lord Neuberger considered that the unsigned contract could not be enforceable without signature for three reasons.

First, within the email correspondence between the parties the offer put forward was rejected, and it is an accepted principle of contract law that once rejected an offer cannot be subsequently accepted.

Second, one of the emails also signified a time frame for accepting the offer, resulting in time being of the essence. By the time Grant purported to accept the offer, the offer was no longer available to accept.

Third, it was concluded that the email communications had been conducted on a “subject to contract” basis, and on this basis the parties were agreeing that their agreement would in due course be contained within the contract.

What this means

Despite the Court of Appeal finding that the unsigned contract was unenforceable and not therefore legally binding, individuals negotiating a contract must still be cautious. They should ensure that any communications between the negotiating parties prior to signature could not create a legally enforceable agreement.

Communications should be marked as “subject to contract” to show that the parties do not intend any agreement to come into effect until the contract is executed. Attention must also be paid to time limits for acceptance and the content of any offer.

Parties need to keep in mind that a lack of signature will not always prevent the agreement being enforced, and should tailor email communications appropriately to ensure that a contract is not formed earlier than anticipated.

When does a contract become effective in the eyes of the law?

ORIGINAL CASE


This case is a useful reminder that a contract does not need to be signed to be effective.

Graeme Grant and Russell Bragg each held a 50 per cent shareholding in, and were both directors of, a company. When they formed the company they created a shareholders' agreement allowing one party to buy out the other's shares in certain events. One such event was if either man was unable to work for more than six months because of sickness.

Grant fell ill and was absent from work for more than six months. On his return it was agreed the shareholders buy-out agreement had been triggered and Bragg would buy Grant's shareholding. A draft contract was produced.

While negotiations continued Bragg started to exclude Grant from the business, eventually running it without him. The draft contract had still not been signed, but the parties still intended to do so.

Bragg's representative emailed Grant to confirm Bragg would purchase the shares on the terms of the draft contract and requested confirmation of Grant's acceptance. Grant confirmed acceptance of the terms via email.

Bragg subsequently claimed he was not bound to buy the shares as the draft contract was never signed. Grant issued proceedings to enforce their sale on the basis a binding contract was in place.

The High Court said the email exchange formed a contract that bound the parties, even though neither had signed the document.

The judgment highlighted where parties are proceeding with the intention of executing a document, it would be inferred that the parties wouldn't be bound unless, and until, they both signed it. However, if the facts change, eg, Bragg taking complete control of the company and the exchange of emails, it can be inferred the parties intended to be contractually bound immediately.

The first email was not intended to be conditional on the execution of the draft contract, but was an offer accepted by Grant's response. The judge found a binding contract was in force on the terms and price in the draft contract through the offer and acceptance of the emails.

WHAT THIS MEANS

Purchasers must be cautious, especially when negotiating terms via email. If you do not want to be bound by an agreement until it is executed, then you should expressly state on all correspondence that the agreement and the content of the correspondence is subject to contract.

Purchasers should take a cautious approach to either party carrying out any of the terms of an agreement in anticipation of signature. If the parties are performing, and/or benefiting from, the contract, the courts are much more likely to hold the contract is binding regardless of whether it is executed.

The interpretations will turn on the individual circumstances and, as the judge considered in this case, the yardstick has to be the reasonable expectations of sensible businessmen and regard should be given to commercial reality rather than just legal rules of contract formation.

High Court Judgment

More
A case involving the impact of a counterparts clause in a draft agreement has gone all the way to the Supreme Court, which ruled that a contract existed. In RTS Flexible Systems v Müller [2010] UKSC 14, RTS began work on the basis of a letter of intent whilst the parties continued to negotiate the final contract. The draft contract contained a counterparts clause which provided that no contract would come into existence until each party had executed and exchanged the counterpart.
No contract was ever signed and a dispute arose. The courts treated the counterparts clause as a "subject to contract" provision. The High Court ruled that there was a contract, but on limited terms. The Court of Appeal reversed this, finding that there could be no contract until the agreement was signed. However, the Supreme Court unanimously found that the counterparts clause had been waived by conduct and that there was a contract on wider terms than those found by the trial judge. As noted by the Supreme Court, this case demonstrates the perils of beginning work without first agreeing the precise basis upon which that work is to be done
------------------------------- merged -------------------------------
i think the case is if there was intent to sign contracts then it is a case of be very careful when agreeing to any partnership without first seeking legal advice..
No contract was ever signed and when a dispute arose. The courts treated the counterparts clause as a "subject to contract" provision. The High Court ruled that there was a contract, but on limited terms. The Court of Appeal reversed this, finding that there could be no contract until the agreement was signed. However, the Supreme Court unanimously found that the counterparts clause had been waived by conduct and that there was a contract on wider terms than those found by the trial judge. As noted by the Supreme Court, this case demonstrates the perils of beginning work without first agreeing the precise basis upon which that work is to be done –

Source: https://www.supplymanagement.com/law/court-reports/graeme-grant-v-russell-bragg2


     5+9= 
    (Note: If wrong - comments will not be posted)
    Footnotes:

    1Will not be visible to public.
    2Receive notification of other comments posted for this article. To cease notification after having posted click here.
    3To make a link clickable in the comments box enclose in link tags - ie.<link>Link</link>.

    To further have your say, head to our forum Click Here

    To contribute a news article Click Here

    To view or contribute a Quote Click Here

    Hosting & Support by WebPal© 2020 f4joz.com All rights reserved.