The reasonable expectations of honest, sensible businessmen
One of the requirements for a valid and binding contract is for an offer by one party to be accepted by another.
In our previous blog, ‘Get it in writing!’ Not necessarily…’we looked at how the courts considered a contract with a specific provision in writing stating that it cannot be varied by an oral agreement and then held that it is in fact possible for the parties to vary such a contract with an oral agreement.
In the case of Reveille Independent LLC and Anotech International (UK Limited), the courts considered whether a contractual term requiring both parties to actually sign the contract in order for it to be legally binding can be waived.
Party one sent a deal memo to Party two setting out the proposed terms. It contained a requirement for both parties to sign it. Party two altered, signed and returned the deal memo to Party one effectively making a counter offer. Party one did not sign the amended deal memo. Negotiations between Party one and Party two for a long form agreement broke down but Party one still performed all of its obligations as set out in the amended deal memo.
Party two subsequently argued that there was no contract based on the amended deal memo because Party one did not accept the terms as it never signed it. The court disagreed.
The court held that it is already established law that a party to a contract can waive a prescribed form of acceptance if the other party accepts in some other way, provided the acceptance has not somehow prejudiced the other party. Party two argued that it had been prejudiced because Party one’s actions created uncertainty over whether a contract had been formed. The court did not agree and responded that the only uncertainty arising was the precise date on which the contract was formed. The fact that Party two was receiving all of the benefits of Party one’s performance of the terms of the amended deal memo meant Party two’s position had not been prejudiced.
The court also highlighted that the conduct of parties after the date on which the contract was made is relevant in confirming their beliefs that there is in fact a binding contract.
The case is a reminder that a specific requirement as to how acceptance of an offer can be made (here, by countersigning the deal memo) can be waived. When investigating whether an offer has been accepted and a contract has come into existence, the principle applied by the courts will be ‘the reasonable expectations of honest sensible businessmen’.
This post was edited by Paul Simpson. For more information, email email@example.com.