Tag Archives: Contract Law

Contract: party had effectively waived the requirement for it’s signature

In what circumstances will a contract result when a written offer document states that it is not binding until signed by the offeree and the offeree does not sign but nevertheless performs in the manner contemplated by its terms?

A party’s consent to a contract is by the acceptance of an offer.

That acceptance can be by the conduct of the offeree so long as that conduct, objectively interpreted, is intended to constitute acceptance.

Acceptance can be of an offer on the terms set out in a draft agreement drawn up between the parties but never signed.

If a party has a right to sign a contract before being bound, it is open to it by clear and unequivocal words or conduct to waive that requirement and to conclude the contract without insisting on it’s signature.

If signature is the prescribed mode of acceptance an offeror will be bound by the contract if the offeree waives that requirement and acquiesces in a different mode of acceptance.

It follows that where the requirement to accept a contract by signature is intended for the benefit of the offeree, and the offeree accepts in some other way, that should be treated as effective unless it can be shown that the failure to sign has prejudiced the offeror.

A draft agreement can have contractual force, although the parties do not comply with a requirement that to be binding it must be signed, if all the terms have essentially been agreed and their subsequent conduct indicates this. Though a court may be hard to persuade of this.

The later conduct of the parties is admissible to prove the existence of a contract, and it’s terms, although not as an aid to it’s interpretation.

In the Court of Appeal case of Reveille Independent Llc v Anotech International (UK) Ltd [2016] the provision that the contract would not be binding on Reveille, unless it signed, was obviously for it’s benefit. It was almost certainly Reveille’s standard form contract.

In not signing, Reveille as offeree was waiving a prescribed method of acceptance, set out for it’s benefit. That was effective so long as there was no prejudice to Anotech as offeror.

The only prejudice Anotech could point to was the commercial uncertainty as to whether it was bound by the contract. That was miniscule when Anotech was receiving all the benefit of Reveille’s performance of the contract’s terms.

In fact, viewed objectively Anotech could not have thought that it was prejudiced when from the outset it actively facilitated performance by Reveille of what Reveille was doing under contract in integrating products into the recording of a famous TV show and licensing Anotech to use the programmme’s brand in marketing its cookware products.

In short, Reveille waived the clause that there would be no binding contract in the absence of it’s signature on the contract, and this did not prejudice Anotech.

Reveille accepted the terms of the contract by conduct, leading to a binding contract.

Subsequent conduct by both sides had confirmed the existence of that contract.

Reveille’s failure to sign the contract just meant uncertainty as to the exact date the contract was formed.

However, Reveille had performed all it’s obligations as set out in the contract with Anotech’s participation and to Anotech’s benefit.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Exclusion of liability for direct loss of profits had to be clear

Clear express words must be used in an exclusion clause in order to overcome the presumption that neither party to a contract would intend to abandon legal remedies for a breach of contract.

In Polypearl Ltd v E.On Energy Solutions Ltd [2014] the High Court failed to find words in the contract that clearly indicated that the parties intended to abandon a claim for direct loss of profits.

The clause excluded E.on’s liability for:

“any indirect or consequential loss, (both of which include, without limitation, pure economic loss, loss of profit, loss of business, depletion of goodwill and like loss) howsoever caused (including as a result of negligence)”.

The court said the most likely (and often the only) damage that the claimant would suffer from a breach of contract (in this case a failure to order) would be a loss of profits.

But it was unlikely that a business man would wish to exclude the possibility of claims for this (usually) direct loss. The court went for the interpretation which it felt to be more in accordance with “business common sense”.

E.on’s interpretation involved the court deeming a claim for direct loss of profits to be a claim for indirect loss of profits which the court considered to be the only kind of loss of profits claim the exclusion clause related to.

If it had been intended to provide that all loss of profits claims were to be deemed to be indirect and thus excluded it would have been relatively easy to do so and this should have been said in the contract clause if that was what was intended.

The words relied on by E.on to include direct loss of profits within the exclusion of liability clause were in parenthesis and thus subordinate to the phrase “indirect or consequential loss“. They were an explanation of it and not an attempt to place a direct loss in the indirect category.

The word “include” was not appropriate or powerful enough to support such an interpretation.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Bank didn’t get Property Company’s Director’s Guarantee by misrepresentation or duress

One of the main features of economic duress is that it involves “illegitimate pressure”: that’s to say pressure without any commercial or similar justification. The “rough and tumble of normal commercial bargaining” is not to be mistaken for illegitimate pressure. Whether it is will depend upon a consideration of all of the circumstances in any given case.

In Bank of India v Riat [2014] Nirpal Singh Riat, the Defendant, signed two limited guarantees as security for facilities provided by the Bank of India (“the Bank”) to Globepark Developments Limited (“the Company”). The Company was a family run business with Mr Riat and his son Ashwin Riat being the sole directors and shareholders. Mr Riat was a 98% shareholder. The Company developed and rented out properties.

He signed a guarantee in January 2006 (“the first guarantee”) in respect of a facility letter (“the first facility”). The first guarantee was limited to £1,237,000 together with interest, costs and expenses. He signed a second guarantee in August 2006 (“the second guarantee”) in respect of another facility letter (“the second facility”). The second guarantee was limited to £490,000 together with interest, costs and expenses.

The Company entered administration on 31 March 2010. The Bank made formal demands under the guarantees which he had resisted on various bases since March 2011.

Prior to the first facility the Claimant allegedly negligently misrepresented to the Defendant that the Claimant wished to expand its involvement in the property development sector which the Defendant said was not a true representation as to the, then, existing intention of the Claimant and induced the Defendant to enter into both of the guarantees.

The Defendant also said the first guarantee was voided for economic duress. He said the requirement of a guarantee was not mentioned at all by the Bank until the last possible moment, at a point when the Defendant had “burned his bridges” with Natwest Bank who were the, then, bankers for the Company leaving him with no practical alternative financiers.

The High Court accepted in principle that a bank’s statement that it wanted to increase its exposure in a particular business sector may, if untrue, be capable of providing the basis for a claim in misrepresentation. For example, the Bank’s policy may in fact have been to reduce lending in that business sector, or the lending may not have been its core business, or may have been limited to particular geographical areas.

The court found that the total amount of exposure in the Real Estate Sector, at the Bank’s main office, rose from £60.436 million as at 30 November 2005 to £68.287 million as at 31 January 2006. Relative to the total amount of actual advances that was an increase from 8.05% to 11.42%. So the first representation was actually true.

Even if the representation had been untrue, the court was not persuaded it had been relied on. Moreover it would have had no causal link to the facilities being taken up. They would have been taken up in full any way.

The requirement of a personal guarantee was standard practice under the Bank’s policies unless there was a good reason to waive the requirement. In fact the court found that there had been a discussion about the personal guarantee as early as 15 November 2005 because the Defendant had failed to provide a Statement of Assets and Liabilities as had been requested by the Bank. The Defendant must have known he was being requested to provide this on the sole basis that it was to ascertain his ability to give a worthwhile personal guarantee to support the Company’s application to the Bank.

The most important motivation for the Defendant choosing the Bank was that it was prepared to provide a 75/25 loan to value ratio on the Bremic Hotel which would enable the release of further funds for the purchase of other property.

There was no significant pressure from the Bank let alone “illegitimate pressure”. The requirement for a personal guarantee was not unusual and had been brought to the Defendant’s attention by 15 November 2005 at the latest. He had other options for refinancing with Handelsbanken and other institutions and had sufficient time even to obtain independent legal advice. Indeed the solicitor concerned had confirmed that he appeared to understand the implications of what he was doing before signing the guarantee.

The court was also unimpressed by the length of time it had taken the Defendant to challenge the first guarantee.

So the court confirmed that the Defendant was bound by the guarantees and refused a declaration that he could cancel them.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.