In this series of articles which looks at some of the most common perils of contracts and how to avoid them, we look at the risks of failing to sign a contract that requires a signature.
A written contract can be in the form of standard terms, which do not need to be signed, or terms which are signed by each party to indicate that they agree with those terms. Here we consider a contract that is intended to be signed by the parties but never is.
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. The reason for this is usually, fairly obviously, that some of the terms have not yet been agreed. Once work has started, the pressure to sign is reduced, 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.
Let’s consider the perils of not having a signed contract:
The problems that this causes are:
- It is not clear whether the terms of the contract have been agreed.
- Maybe some terms are agreed, but others are not.
- Certainly, the terms will be easier for both parties to dispute if the contract is not signed.
- 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 depend on what you said to the other party or how you conducted yourself towards the other party. Did you say things, or act in a way, that indicated that you agreed to the contract, even though you did not sign?
- The written contract may say that it is the “entire agreement” but, if it is not signed, other agreements reached verbally or in emails or other documents could form part of the contract.
Now let’s consider how to avoid these perils:
- Don’t start to perform your contractual obligations until the contract is signed.
- Sometimes this is easier said than done. In exceptional circumstances, it may be absolutely necessary to start work before the contract is signed. If it is, a thorough assessment of the risks should be done before deciding to do so. It is possible that if the terms of the contracts are very harsh, 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 deliberately not signed the contract because you have not agreed to some or all of the terms, ensure that the other party is aware of this.
- Each situation is different, but it is very likely that in the vast majority of cases, it will not be absolutely necessary to start work before the contract is signed. If you do decide to start work without the contract being signed, it is highly unlikely that it will ever be signed.
- 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
- Write to them to say 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 agreed
If you have a bespoke written contract which has to be signed or even a standard written contract which has to be signed, it is very important to ensure that it is signed. Otherwise, there will be doubt about whether the contract is agreed. Once work has started, the leverage on both sides to sign the contracts is substantially reduced. If you are deliberately not signing because you do not agree to the terms, as often happens, you need to be aware of the risks of not signing and take appropriate steps to mitigate those risks.