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As a business owner, you should be aware that it is standard practice for parties to an agreement to sign a commercial contract. There are two main reasons for English contracts having signature sections. The first is to aid certainty, and the second is to act as evidence of the parties’ intentions. However, there are occasions when a contract may be binding, even without the parties’ signatures. This article will explore the slightly unusual circumstance of a commercial contract having legal effect despite being unsigned. This article aims to help your business understand when a party may hold you to contractual terms you technically did not sign up to.
What is a Commercial Contract?
Put simply, a commercial contract is a legally-binding written agreement between two businesses. A typical example is when one party requests a service in return for a specific sum of money.
Is it Common for Commercial Contracts to Be Unsigned?
No, not unless negotiations fail and the parties have no intention to proceed with the original deal. It is unusual for parties to exchange contract wording and follow it without first signing a binding contract. However, most business owners in England are very busy, and one party (or both) can forget to sign a commercial contract.
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Can an Unsigned Commercial Agreement Bind My Company?
Yes, but only in limited circumstances. In most situations, an unsigned contract will result in a non-deal, and the document will not legally bind the parties. However, there are certain situations where a court may hold that the wording has legal effect.
Let us explore the two most common scenarios below.
1. Where the Parties’ Conduct Suggests Agreement
A judge will always consider the parties’ actions and whether they act per the agreement. This is because a judge can give life to a contract if they believe the parties honestly intended to follow its terms and forgot to sign it.
The main reason a judge will uphold a standard contract is that the signature indicates the parties’ consent to the terms of the commercial agreement. However, parties can demonstrate their binding agreement in other ways, such as following the words to the letter. Thus, a lack of a signature should not always invalidate the agreement.
2. Where the Businesses Make a Verbal Contract
Without a written document, it is impossible to record a signature. However, contrary to popular belief, verbal contracts are just as legally binding as written ones. However, the main issue is evidencing the exact terms agreed upon between the parties. It is common for the parties to disagree on exactly what the original agreement was, as there is no contract wording to review and check.
Judges are happy to enforce verbal contract terms. However, they need to hear evidence from the parties regarding their conversations when striking the deal. Naturally, the parties in dispute are likely to tell the judge different things supporting their interests. Accordingly, this makes it difficult for the judge to determine what happened.
However, as with unsigned written contracts, judges will look at the parties’ actions following the deal. Our courts treat the conduct of businesses after a deal as potential evidence of the terms of the agreement at the relevant time.
So, again, businesses can agree to a contract (written or verbal) and have it enforced in a court in England absent any signature.
Exceptions
Despite the above, it is important to note that some commercial agreements expressly require a signature to be binding.
Whilst not exhaustive, some examples include contracts seeking to transfer shares or assign intellectual property rights between parties.
It is essential to obtain legal advice when considering the potentially binding effect of a signed or unsigned contract, as some types of commercial contract agreements will have strict rules on signature (while others will not).
Key Takeaways
Our courts aim to promote certainty when it comes to commercial agreements. In this way, judges prefer signed contracts to unsigned ones. Nevertheless, this will not stop them from declaring contract arrangements legally binding when the parties’ conduct suggests so. This is not a simple area to navigate, and, because of this, many business owners obtain expert legal advice regarding any unsigned commercial deal.
If you need advice on the enforceability of unsigned commercial contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Because judges acknowledge that, in some situations, actions can speak louder than words as to whether the parties accept specific terms.
Of course, yes. Many companies have to take legal action to obtain a judge’s view due to unsigned contracts. Signing valid contracts is a simple and effective way of avoiding the time, stress and cost of legal action.
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