Thursday, 11 March 2010

Incomplete contract can still be binding

The Supreme Court (still, in my traditionalist mind, the House of Lords) has decided that a contract that the parties failed to finalise in accordance with its terms was nevertheless binding. more often, the problem is to get people to draw up contracts at all, but in this case - RTS Flexible Systems Limited v Molkerei Alois Müller Gmbh & Company KG [2010] UKSC 14 - the parties had spent a great deal of time, and money, reducing their agreement to writing, then stopping just short of finishing it.

Of course, this sort of thing must happen all the time. They got so far down the road, the contract was being performed, they settled the terms and put in place a letter of intent. The terms said that the contract would become binding only when they had signed and exchanged their respective copies, but things started to go wrong and they never got that far.

The Supremes decided that there was an agreement, though: there was an offer and an acceptance, and intent to create legal relations. Most importantly, though, there was a waiver of the requirement for an exchange of signed copies. They had written it into the contract but had not relied on it. The court thought it inconceivable that there was no contract, and disagreed with the trial judge's view that only some of the terms had been settled. The contract was fully in place. It goes to show that the contract and the document that records it are not one and the same thing.

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