Can You Enforce An Unsigned Contract?

In Short

• A contract can still be binding without a signature if there is evidence of offer, acceptance, consideration, and intention to be legally bound.
• Courts will also consider conduct, communications, and legislative requirements when deciding enforceability.
• If a contract is not enforceable, you may still claim compensation through estoppel.

Tips for Businesses

Always aim to have contracts signed before work begins. If urgent action is needed, use a letter of intent or interim agreement to protect your position. Keep detailed records of communications, payments, and work done, as this evidence can be vital if a dispute arises over an unsigned agreement.

While having a written contract with another party is ideal, it does not always happen. In business, it is common for parties to want to dive into work immediately, even before a contract is signed. Often, both parties fulfil their obligations without any problems. But what if a dispute arises? Depending on the situation, an unsigned contract may still be binding and enforceable in court. This article outlines 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 enforce it in court:

• one party must offer terms, and the other must accept them (offer and acceptance);
• the parties must exchange something of value, such as money (consideration);
• the parties must intend to be legally bound by the terms of the agreement (intention); and
• only the parties to the contract can enforce it (privity).

While it is preferable to have a contract in writing, as it allows for a clear understanding of the parties' intentions and agreed terms, a contract does not need to be in writing to be binding. It can also be verbal or implied through actions.

For instance, if you and a manufacturer have a conversation and verbally agree to purchase their goods, this could constitute a 'contract'. Even if the contract is not written down anywhere, you may still enforce it if your conversation meets all the requirements for a binding contract (as outlined above).

Other Requirements

Legislation can set out further requirements regarding the enforceability of a contract. For example, the Corporations Act and a company's constitution sets out who has the authority to bind the company to a contract. Additionally, industry-specific laws may apply to contracts for goods and services, like those in:

• building and construction;
• aged care; and
• NDIS.

This legislation may set out specific elements that must be included in a valid and enforceable contract for the provision of goods or services in these areas. Without meeting these legislative requirements, as well as the general criteria set out above, the contract may not be valid or enforceable (even if it is signed correctly).

Can You Enforce an Unsigned Contract?

If you are trying to enforce a contract that the other side has acted on but has not signed, there are some critical criteria to consider below.

Is There Evidence of Acceptance?

If the other side has not signed your contract, it is assumed they have not accepted the offer. You need to show other evidence proving their agreement to the contract terms.

When arguing this, simply showing an email from your contractor saying they are "happy with the terms and keen to get started" might not be enough. The court will evaluate such statements with the overall context of the contract-related communication. For instance, if the other party has already begun work or behaved in a manner indicating acceptance, that strengthens your case.

For example, you have a discussion with a carpenter to build a table for you. They agree to build the table according to the specifications you verbally provide. Since the contract is not written, there is no signature. One way to demonstrate acceptance is by showing that the carpenter started building the table. This action indicates their acceptance of the contract in their commencement of the work.

Did Both Parties Exchange Something of Value?

In a commercial contract, consideration typically involves money. Generally, payments made prior to the formation of the agreement do not qualify as consideration. Therefore, if the other party did not sign the contract, making a deposit does not automatically render the contract binding. However, if the other party accepts the deposit and initiates work based on the unsigned contract, your case will be stronger. Furthermore, the closer the work is to completion, the stronger your position becomes.

Did Both Parties Intend for the Terms to Be Binding?

Proving this is the most challenging aspect. A well-drafted contract may spell out conditions for enforceability. For instance, it might state that any actions taken before signing are not part of fulfilling the contract. So in this case, arguing that the other party intended the terms to be binding will be tough.

If the contract does not specify the necessity of signing, you should consider the actions of the other party. If they have expressed concerns or if a vital aspect of the deal has not been addressed, the court is unlikely to enforce the contract. However, if the other party did not sign due to a genuine mistake, and both parties have acted as if the terms bound them, the court might deem the agreement binding.

Ultimately, to determine if an enforceable contract exists, the court evaluates what a reasonable person would perceive as the intent in the circumstances. This makes the 'intention' element highly fact-specific and often the most disputed issue. The more ambiguous the conduct, the harder it is to precisely prove which terms the parties mutually agreed upon as binding contractual obligations.

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Other Options

Estoppel

If you cannot prove there was a binding contract, you might still seek a different solution through estoppel. Estoppel stops someone from saying something contradictory to their actions or promises. Simply put, if you can show the other party clearly promised something, and that you relied on it, causing you harm, the court might compensate you.

When you are providing services and have already commenced, and the contract with the other party has not been signed, estoppel could be more accessible to prove than a breach of contract. However, the compensation available to you via estoppel compared with a breach of contract claim might be lower. Additionally, proving the elements of estoppel can still be challenging. You need to establish:

• that there was an explicit promise made;
• that you reasonably relied on that promise; and
• that you suffered tangible detriment as a result of your reliance on that promise.

For instance, imagine a software company that specialises in developing custom business applications and negotiating with a business for a custom application. Throughout discussions, the business repeatedly assured the software company of its interest and negotiated project terms. Trusting these assurances, the software company allocated a team of developers exclusively to the project, choosing to turn down other potential business opportunities and incurring costs. Despite no formal contract, the business informed the software company three months later that they would not proceed with the project. In this scenario, the software company may claim estoppel to prevent the business from denying the contract's existence.

Practical Steps to Strengthen Your Position

When dealing with an unsigned contract, documenting everything becomes crucial. Collate detailed records of all communications, including emails, text messages, and meeting notes that demonstrate the other party's acceptance and commitment to the agreement. Take photographs or videos of any work commenced, deliveries made, or payments received, as these serve as tangible evidence of performance.

If things are going well currently, but you ar concerned about a dispute arising in the future, it may be helpful to send a follow-up email summarising the key terms discussed and asking for written confirmation. While this does not guarantee enforceability, it creates a paper trail showing mutual understanding of the agreement. If possible, obtain written acknowledgment of receipt of goods, services, or payments, even if the main contract remains unsigned.

Time is also a critical factor. The longer both parties continue performing under the assumed contract without objection, the stronger the argument for enforceability becomes. Courts often view sustained performance by both parties as evidence of mutual acceptance and intention to be bound.

Ultimately, while these practical tips can assist you, prevention remains the best approach. Always aim to have contracts signed before commencing work or making significant commitments. If immediate action is necessary, consider using a simple letter of intent or interim agreement that outlines basic terms while the whole contract is being finalised. This provides some legal protection while maintaining business momentum.

Key Takeaways

In the fast-paced world of business, it is common for a job to proceed without one party formally signing the contract. While this may not pose an immediate issue, it can complicate resolving any disputes that arise. If you find yourself in this situation, it is crucial to seek legal advice to determine if you can:

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

If you need help understanding how to enforce an unsigned contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1800 532 904 or visit our membership page.

Frequently Asked Questions

Can I enforce an unsigned contract if the other party has only made a partial payment?

Partial payment can serve as evidence of acceptance and consideration, strengthening your case for enforceability. However, it is not automatically conclusive. Courts will examine the full circumstances, including whether both parties acted consistently with the contract terms and depending on if there is evidence that the parties intended to be legally bound. The key is demonstrating that the payment was not just a deposit or advance, but rather performance under the agreed terms.

If I have started work under an unsigned contract but have not been paid, does this strengthen or weaken my position?

Starting work without payment can actually strengthen your position in some ways, as it demonstrates your commitment to the agreement and provides evidence of acceptance through conduct. However, the lack of payment may weaken the consideration element, since courts generally look for mutual exchange of value. Your strongest position would be if you can show the other party accepted your services (even if payment is outstanding) and establish that both parties acted as if bound by the terms. The key is proving that the other party requested or accepted the work, not just that you performed it on your own accord.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.