When Conduct Results in a Binding Contract
The Court of Appeal has given useful clarification1 on when a contract can be formed through acceptance by conduct – even when the written contract states it was not binding until signed by both parties, and one party had not signed it.
The draft contract (a ‘deal memo’) included a provision requiring both parties to sign it in order to be binding. The defendant company altered, signed and returned the document – amounting to a counter-offer. At issue was whether there was an agreement in place given that the claimant company had not signed the counter-offer – but had accepted it by the claimant company’s conduct in the manner contemplated in its terms.
The Court of Appeal ruled that the claimant had waived the contractual requirement of acceptance by not signing it and the defendant company was receiving the benefit of the claimant’s performance of the deal memo’s terms. A legally binding contract therefore existed.
What does this mean?
The practical effect was that in not signing, the claimant was waiving the prescribed mode of acceptance which was set out for its benefit. That was effective so long as there was no prejudice to the defendant. Subsequent conduct on both sides was confirmation of the existence of the contract.
The court noted that “it is well accepted that acceptance can be by the conduct of the offeree so long as that conduct, as a matter of objective analysis, is intended to constitute acceptance”. Acceptance can be of an offer on the terms set out in a draft agreement drawn up between the parties – but never signed.
A draft contract can, therefore, have contractual force – even though the parties do not comply with a requirement that to be binding it must be signed, so long as all the terms have been agreed and their subsequent conduct indicates this. However, a court will not reach this conclusion lightly.
How can we help?
We provide expert advice on the effective drafting and formation of all types of commercial contracts. If you are considering new contract terms, or if you have any concerns about how your existing commercial contracts apply in your business, contact the experienced commercial solicitors at Herrington Carmichael for specialist advice.
Please contact Mark Chapman on 01276 686222.
1 Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443
For further information or to discuss the issues raised by this article, please contact Herrington Carmichael on 0118 977 4045 or email [email protected].