If I Haven’t Signed a Contract, is it Binding?
Introduction
Sometimes, in all the excitement to get a construction project going, the task of actually signing a contract can be overlooked. If and when things go wrong, and you realise that you never got around to signing the contract, does this mean that there is no contract? If so, what are the terms of your relationship?
Elements of a Binding Contract
To form a legally binding contract, the following five things must exist at the same time:
Offer – one party must make an offer to the other;
Acceptance – the party to whom the offer was made must accept the terms of the offer without significant changes;
“Consideration” – this is another way of saying '“value”: there must be something valuable exchanged between the parties;
Intention to Create Legal Relations – both parties must intend for their agreement to have legal consequences; and
Certainty – the terms of the agreement must be sufficently clear and complete.
Without these elements, no binding contract exists. For example, is the nature of the offer is vague, or if one party makes the offer as a joke (not intending to create a legal relationship) then there is no contract.
What is obviously absent from this list of things that are necessary to create a contract is a signed document.
Is Signing a Document Necessary?
One common misconception is that a contract must be written down and signed by both parties in order for it to be binding.
In reality, a contract can be formed without a written document, and without any signatures. Contracts can be oral, or even implied by conduct. Whilst a signature might help provide evidence that a party intended to be bound by the terms of the document they are signing, the absence of a signature (like the absence of a document) does not necessarily mean there is no agreement.
Oral: a contract can be formed through spoken words, either face-to-face or over the phone;
Conduct: actions alone can indicate the formation of a contract. For example, if one party starts providing services or goods and the other party accepts them and starts paying for them, this can be seen as an agreement, even if nothing has been written down and there is no evidence of the parties orally agreeing to act as they have;
Emails etc: contracts can also be formed through email exchanges, text messages, and clicking buttons and boxes online. Whilst these are written (in one sense) they do not alway look like traditional contracts and they are rarely signed.
These examples show that it is the presence of the five key elements—offer, acceptance, consideration, intention, and certainty—that form a contract, not necessarily the act of adding a signature to a document.
The Role of a Written Contract
While a signature is not required, having a written document helps greatly in proving the terms of the agreement. A written contract will normally outline each party's obligations and help to prevent significant misunderstandings or disputes.
For this reason, businesses often prefer (and all parties should aim to prepare) written agreements but (except for special cases, like when land is sold) the law does not demand a formal contract to be signed, as long as the key elements are met.
Signed Documents and Enforceability
In the case of a signed contract, even if the signatory has not actually read the document they have signed, they are generally bound by its terms. This is because the law assumes that when someone signs a document containing contractual terms, they expect to be bound by them and cannot declare that they did not read or understand the terms in order to get out of the contract.
There are exceptions to this, such as if the other party misrepresented what was in the contract, or if the contract contains particularly harsh or unusual terms. For such onerous terms, courts have sometimes ruled that these need to be brought specifically to the attention of the signatory to be enforceable.
Conclusion
In summary, a binding contract does not require a signature, a formal contract, or even any document at all. A contract can be created through oral agreements, conduct, emails, actions on a website, or a combination of these (and other) things. Provided the essential elements are present: offer, acceptance, consideration, intention, and certainty, then a contract is made. However, having a written contract (especially a signed one) helps ensure clarity and enforceability in case of disputes.
If you need help preparing a construction contract, or if you need advice as to whether a contract that has been signed is binding, contact Hamshaw today.