Does A Contract Have To Be Signed?

 

Many contracts that are agreed between two parties are agreed verbally or sometimes by email. The terms are agreed and both parties are, at this point at least, happy to go about their business as per the terms of the contract. Unfortunately, as people’s lives have many demands put upon them, the contract sometimes doesn’t get formally signed. This poses the question as to what happens if a contract isn’t signed. Generally, a contract is only valid when it is signed by both parties. However, if both parties agree the terms of a contract and both then act in a way that indicates an intention to accept the terms of this agreement, they might find themselves bound to the contract. In this article, does a contract have to be signed, we take a look at the potential pitfalls of not signing a contract.

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What is a contract?

In order to be legally binding, a contract needs to have four fundamental parts:

  • an offer
  • the clear acceptance of that offer
  • consideration (i.e. the exchange of something of value by both parties e.g. services, goods or money)
  • an intent to create legal relations

A written contract can be in the form of standard terms, which do not need to be signed, or terms that are signed by each party to indicate that they agree with those terms.

It is not uncommon that a contract requiring signature remains unsigned, by one or both of the parties, after work has started under the contract. Often, the reason for this is that some of the terms have not yet been agreed. Once work has started, the signing of the actual contract is forgotten about because each side is on the way to getting what it wants out of the contract. Problems arise if there is a dispute about what was agreed or something goes wrong, such as the work being delayed or not being to the required standard or the product being delivered late or not being fit for purpose.

The question also arises as to what happens if the contract was never in writing in the first place. Provided there is absolutely clear evidence of both an oral agreement and that the agreement is being relied on by both parties, then there may indeed be a “contract” between them even if there is not actually anything in writing.

However, without something in writing indicating both the agreement and the terms, it may prove extremely difficult to establish a binding contract on what the terms were. This is especially so in the case of a dispute.

Does this apply to all areas of law?

Oral contracts can happen in most fields of law. However, it should be noted that when it comes to any contract for the sale, transfer, option or lease of land, in order to make the agreement binding and effective, it must be both in writing and signed by both of the parties.

Can I start work before the contract is finalised?

It is always better for a contract to be in place before you start any work. However, in many cases, this will not be possible.

Even if full terms have not been agreed try and set out as many agreed terms as possible in a short form interim contract or put in place binding heads of terms.

If you can record as much agreement as possible that will help if arguments on whether a contract exists arise at a later date.

It is important to note that even if it is found that no contract exists, the party who has undertaken the work may well still have a claim in restitution for the work that has been done. A claim would be made under the quantum meruit principle. This basically means that there needs to be paid a fair and reasonable sum for the service supplied or the work that has been undertaken.

What are the pitfalls of having an unsigned contract?

  • There will be ambiguity as to whether or not the actual terms of the contract have been agreed.
  • Without a signed contract, it may be the case that some of the terms have not actually been agreed whilst others have been agreed.
  • Litigation without a signed contract can prove to be problematic.
  • Even if you deliberately do not sign the agreement, because you do not agree with some or all of the contract terms, you could still (potentially) be bound by the contract. Whether or not you are is likely to will depend upon what you said to the other party or how you conducted yourself towards the other party.

Is there any way of avoiding these potential problems?

If you have decided not to sign the contract because you have an issue with it, let the other party to the contract be aware of this.

Don’t start any work until the contract is signed by both parties, although this might not always be practical. If it is absolutely necessary to start work before the contract is signed, a thorough assessment of the risks should be done before deciding to do so. If it is possible that if the terms of the contract are potentially problematic, you would be better off not signing because the terms which would be implied by the law are more beneficial than the terms of the written contract.

If you have to start performance before the other party signs the contract, write to them to say you are performing on the basis that the terms of the contract are agreed (provided you agree with the terms of the contract) or inform them which terms are agreed and that you are performing on the basis these terms are binding (if you don’t agree with all of the proposed terms) or write out a binding heads of terms, setting out those key terms which are you are agreeing to.

Is there anything else that can stop an unwritten or unsigned contract being enforced?

A court will want to be sure that any agreement was not made under fraud or duress, and that both parties had full legal mental capacity, and that neither of them was a minor.

Conclusion

If you have a bespoke written contract that has to be signed or a standard written contract which has to be signed, it is very important to ensure that it is actually signed. Otherwise, there will be doubt about whether the contract is agreed. Once work has started, the bargaining position of both sides to sign the contracts is substantially reduced. If you are deliberately not signing because you do not agree to the terms you need to be aware of the risks of not signing and take appropriate steps to mitigate those risks.

How we can help

We have a proven track-record of dealing with contract disputes. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact Our Commercial Litigation Solicitors

It is important for you to be well informed about the issues and possible implications of a contract dispute. However, expert legal support is crucial in terms of ensuring a positive outcome to your case..

To speak to our Commercial Litigation solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

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