Commercial Contracts: Beware Signature Blocks

Commercial Contracts: Beware Signature Blocks

A signature block within a draft contract cannot implicitly create a prescribed mode of acceptance. The expert commercial litigation lawyers at Bahamas law firm ParrisWhittaker are highly experienced in advising and representing businesses on the execution and acceptance of commercial contracts.

Correct execution of commercial contracts is an important step to ensure the terms of the contracts are legally binding on the parties.  How will the courts decide whether or not a contract is binding where there is a dispute over how the contract terms have been accepted - other than with a signature in the contract itself? A recent ruling of the High Court in the UK provides useful guidance to commercial lawyers and their clients on the signing of legal documents.

What’s the background?

A dispute arose between two companies over whether or not the first company (the buyer) had entered into two binding contracts to purchase supplies from the second company (the seller). The two written contracts concerned were signed by the seller and incorporated a dedicated space for the buyer to sign the contracts which included the words ‘accepted [buyer]’ and a requirement that the buyer return the signed copy.

Whilst the buyer neither signed nor returned the contracts, it sent the seller a number of "price fixation instructions" under the terms contained in those contracts. In response, the seller emailed the buyer back a "fixation confirmation." The buyer then attempted to vary the terms, but the seller made counter-proposals based on further purchases of supplies.

The seller argued that the buyer’s price fixation instructions amounted to acceptance of the contractual terms making them legally binding. However, the buyer contended that given there was a specific method of acceptance prescribed in the contract, there was no binding contract on the basis there had been no valid acceptance of the terms.

What did the court decide?
The signature block of a draft contract cannot implicitly create a prescribed mode of acceptance. On the true construction of the contract, the fact that a draft contract envisaged a signature and left a space for one did not entail that signature was a prescribed mode of acceptance. No prescription or conditionality had existed in this case. The court pointed out that, in any event, a prescribed mode of acceptance can only be for the benefit of the offeror (the seller in this case), not the offeree (the buyer).

The price fixation instructions were sufficient to amount to an unequivocal acceptance of the contract terms, and the seller waived its requirement for signature by confirming the price fixations.

What does this mean?

Commercial organisations should be aware that acceptance of draft contractual terms do not have to be in the form prescribed by one party in the contract.  Acceptance can be
inferred by action taken by one party in accordance with the contract terms - even if the contract itself is not signed.

Parties entering into contracts should think carefully before undertaking business activities linked to the substance of the contract if the contract is not signed. 

How can we help?

The commercial litigation lawyers at Bahamas law firm ParrisWhittaker have years of experience advising commercial organisations on their commercial contracts. Contact us straightaway for urgent, strategic advice.