01 August 2016

Can an agreement be binding even if it is not signed?

The Court of Appeal has recently considered how a provision in a document, which says that it must be signed in order to be legally binding, can be waived.

A proposed agreement referred to as a ‘Deal Memo' specifically said that it was not binding unless signed by both parties. Only one party ('the licensee') signed it, and only did so after amending it and sending it back to the other party. The licensee later argued that it was not bound by the Deal Memo as its amendments to it amounted to a counter-offer, which the other party never accepted. Therefore, a contract did not exist between the parties and the licensee did not have to pay for the services provided under the Deal Memo by the other party.

The Court of Appeal disagreed, ruling that the Deal Memo had been 'clearly and unequivocally' accepted by both parties. For the following reasons:

  • The licensee had behaved as if the Deal Memo was legally binding;
  • The licensee had actively enabled the other party to perform its obligations under the Deal Memo;
  • The licensee had benefited from the Deal Memo and had not, at any point during performance of the Deal Memo, suggested it was not binding;
  • The other party had carried out its obligations under the Deal Memo, and had therefore:
    • accepted the terms of the Deal Memo by its conduct;
    • waived the requirement  that the Deal Memo had to be signed by both parties in order to be legally binding.

A party can only be treated as having waived a requirement in an agreement, specifying how the parties must agree its terms, if the other party is not prejudiced. In this case, the licensee had not been prejudiced by the other party's acceptance of the agreement by conduct rather than by signature. This was because the licensee had received all the benefits of the other party’s performance of the Deal Memo.

Recommendation

A party to an agreement which says it is only binding if signed by all parties should be aware that, in certain circumstances, it could be bound by the terms of the agreement even if it did not sign it.

Case ref:

Reveille Independent LLC v Anotech International (UK) Ltd [2015] EWHC 726