Is An Unsigned Contract Still Valid?

A recent issue arising in a construction dispute this firm is currently resolving, relates to whether or not a contract that has not been properly executed can still govern the contractual relationship between the parties. One side (as usual!) is very keen to argue the written contract does not apply as it was never signed.  It contains a term which is very helpful to our client.

Many people hold the bullish opinion that if a written contract is produced, and negotiated but never actually signed, then it cannot govern the agreement between the parties.  Well, that’s wrong.

Whilst of course every individual case has to be decided on its facts, the rule is that if the parties have agreed all of the essential terms of the contract, and they then behave in a way that is entirely consistent with performance of the written contract then there is a very good argument that the unsigned contract has been agreed even if it hasn’t been signed. The general rule doesn’t apply just to construction and building contracts, it applies in relation to all types of contractual agreement.

If you don’t want to be bound by a contract then it needs to be made clear beforehand, so if there is correspondence from one party clearly making it clear that essential terms of the contract have not been agreed and it is for that reason that they have not signed it then the position is fairly clear.  But where all the key contract terms have been agreed, (even if “subject to contract”) and then the parties actually begin to perform the contractual works, or to deliver goods and services entirely as anticipated in the written contract, it would be extremely risky to assume that just because a contact has not been physically signed it is not legally binding on the parties.

Certainty is the best policy. Parties to all contracts, whether construction or building contracts or for the supply of goods and services should certainly, where possible, agree all of the contractual terms and properly execute a formal contract before commencing.

The Commercial Litigation Team can advise on contract disputes, for a free initial consultation give them a call.