Contract Law update

Contract Law update

We have prepared a briefing on key cases we think you should know about, focused on contract signing, variations and conflicting terms.

 

Does a contract need to be signed to be binding?

 

In a recent case, the Court of Appeal has held that the parties to a contract had waived an express requirement that a contract was only binding when it had been signed by both parties.

 

A deal memorandum, setting out the proposed terms of an agreement, contained an express term that it would not be binding until it was signed by both parties. The memorandum was sent by one party, Reveille, to the other, Anotech. Anotech returned the memorandum duly signed but with handwritten amendments. Reveille did not in turn sign the amended memorandum on receipt but, pursuant to terms of the memorandum, used and promoted Anotech’s products in its television series.

 

Reveille subsequently submitted its invoice to Anotech, which Anotech refused to pay arguing that there was no binding contract as the memorandum had not been signed by both parties. The Court of Appeal disagreed and found that the agreement was binding.

 

What does this mean for me?

 

Even if you incorporate a signature clause into an agreement, therefore creating a presumption that it will not be binding until it is signed, if your conduct or the conduct of the other parties indicates that there has been acceptance of the agreement, then irrespective of whether or not it has been signed, a binding contract can still exist.

 

Does a variation of a contract need to be in writing to be binding?

 

The Court of Appeal has held in a recent case that a requirement that a variation to a contract be in writing and signed did not prevent a variation being made orally.

 

In this case, MWB Business Exchange managed office premises and entered into a licence with a new tenant for a suite of offices. Subsequently, the tenant fell into arrears with its monthly payments and eventually notice was served to terminate the licence.

 

The tenant alleged that the termination was wrongful because, before the termination, an oral agreement had been made between a senior employee/ officer of the parties to reduce the amount of the monthly licence payments for a limited period. The tenant had paid the first reduced payment under this revised payment schedule.

 

MWB denied that any agreement had been reached on the revised payment schedule and argued amongst other things, that the contract contained a term requiring any variation to be in writing and signed by both parties and as a result, any oral variation to the payment schedule was ineffective. The Court of Appeal disagreed and found that the agreement had been varied orally.

 

What does this mean for me?

 

Although an agreement may contain a requirement for any variations to be in writing, the parties involved can orally agree a variation. However, in the interest of minimising future disputes, it is still sensible to include this requirement in the hope that it will encourage the parties to record any changes to the contract in writing.

 

What happens where there are conflicting contract terms?

 

The Court of Appeal recently considered the right for a mortgage lender to unilaterally vary its rates on a tracker mortgage.

 

As part of the mortgage, there were two key contractual documents - the mortgage offer and the lender’s standard terms and conditions. The lender’s standard terms and conditions contained a clause stating that in the event of an inconsistency, the terms of the offer would prevail.

 

The claimant objected to the lender’s standard terms and conditions which stated that the lender had discretion to increase the interest rates on a tracker mortgage and to require early repayment of the loan. These conditions were not included in the mortgage offer.

 

The Court of Appeal held that a clause in the standard terms and conditions entitling the lender to unilaterally vary the interest rate in a way unconnected with the Base Rate was different to the terms of the mortgage offer and therefore inconsistent with the mortgage offer. As a result of the inconsistency clause, the terms of the mortgage offer prevailed.

 

What does this mean for me?

 

The decision reinforces the importance not just for lenders but all contracting parties to ensure that there is consistency between all relevant contract documentation. As a protective measure, it should be made clear in the documentation which terms should take precedence in the event of inconsistency.

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Julie Alchin Associate

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