What happens if you agree to a contract with another party and you start performing it but the other side hasn’t signed it? Even with the best of intentions, this type of mistake can easily happen in the commercial world. In many cases, both sides will fulfil their obligations under the contract with no issues. But what if it ends in dispute? Depending on the circumstances, an unsigned contract may still be binding and enforceable in court. This article will set out the criteria that a court would consider when deciding whether to enforce an unsigned contract.

Criteria for Whether You Can Enforce a Contract

General Criteria

A contract is a legally binding agreement. To be enforceable in court:

  1. one party must offer terms and the other must accept them (agreement);
  2. the parties must exchange something of value, such as money (consideration);
  3. the parties must intend to be legally bound by the terms of the agreement (intention).

In general, a contract does not need to be in writing to be binding. A contract can also be verbal or implied through actions.

Companies

Contracts between companies are regulated by a specific set of laws, known as the Corporations Act, or the company’s constitution.

In contrast, there are no specific laws that regulate contracts for sole traders, individual trustees, and unincorporated partnerships.

Can I Enforce an Unsigned Contract?

If you’re trying to enforce a contract that the other side has acted on but hasn’t signed, there are some key criteria to consider.

Is There Evidence of Acceptance?

If the other side hasn’t signed your contract, it will be assumed that they have not accepted the offer. You will need to be able to point to other evidence to show that the other side has agreed to the contract’s terms.

When arguing this, you can’t simply show an email from your contractor which states they are “happy with the terms and keen to get started”. The court will consider these kind of statements in terms of the overall context of the correspondence relating to the contract. For example, the other side may have already started work or conducted themselves in a way that suggests they accepted it.

Did the Parties Exchange Something of Value?

In a commercial contract, consideration is usually money. As a general rule, payments made before the agreement took place won’t count as consideration. Therefore, if the other side didn’t sign the contract, paying a deposit won’t automatically mean that the contract is binding. However, if the other side receives the deposit and begins the work according to the contract, you will have a stronger case. In addition, the closer the work is to completion, the stronger your case will be.

Did Both Parties Intend to be Bound by the Terms?

This is the most difficult criteria to prove. A well-drafted contract may specifically set out conditions for the contract to be enforceable. For example, it may state that any actions taken before the parties sign the contract is not considered to be part of the performance of the contract. Therefore, it will be very difficult to argue that the other side intended to be bound.

If the contract does not state that signing is necessary, you will need to consider what actions the other side has taken. If the other side has expressed concerns or a fundamental part of the deal has not been addressed, the court will be unlikely to enforce the contract. On the other hand, if the other side didn’t sign the contract due to a genuine mistake, and you have both acted as though you were bound by the terms, the court may find that the agreement is binding. To determine this, the court will consider what a reasonable person would have thought was intended in the circumstances.

Other Options

Estoppel

If you cannot prove that there was a binding contract, you may be able to ask for a different remedy through estoppel. Estoppel prevents a person from arguing something that is different from what they previously said or did. Put simply, if you can prove that the other side made a clear promise that you relied on and it caused you loss, the court may provide you with some compensation. In the case of a contract that the other side hasn’t signed but you have started performing, estoppel may be easier to prove than a breach of contract. However, the amount of money that you recover may not be as high.

Key Takeaways

In the fast-paced world of business, it is not unusual for a job to go ahead without one party formally signing the contract. While this won’t necessarily be a problem, it may make any dispute that arises complicated to resolve. If you find yourself in this situation, it is important to seek legal advice to see whether you have any options to:

  • enforce the contract;
  • seek compensation through estoppel; or
  • negotiate a settlement.

If you would like advice or assistance on how to manage a dispute over a contract, you can contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Simon Hillier
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