For Heaven’s Sake, Sign Your Contracts

Joel SowalskyHave you ever been in the situation where you sent or received a purchase order or a contract, one or both parties did not sign it, but each party performed their obligations in accordance with the unsigned agreement?  This happens more often than you might think.  For all kinds of reasons, many people think that they are better off if they don’t sign contracts.  Usually, that’s wrong.

I was consulted recently about an employment dispute that had gone to mediation.  An understanding was reached and a settlement agreement was drafted.  The agreement included typical provisions for mutual non-disparagement, confidentiality and releases of claims.  Over the next few weeks, the deal changed in various ways that left each party unhappy, but the written agreement was updated to reflect the changes.  The parties then performed the payment and other terms of the settlement agreement, but neither party ever signed it.  I was asked whether the terms concerning non-disparagement, confidentiality and releases were enforceable.

The short answer is that it is entirely unclear.  In a recent construction case, the contractor was from Illinois, the subcontractor was from Virginia, and the work was performed in Louisiana.  The unsigned purchase order had a clause that required disputes to be resolved in the courts of Illinois.  The Virginia-based subcontractor argued to the Illinois court that this clause was not binding because the purchase order was not signed.  The judge disagreed, saying that a party’s actions and conduct can show its agreement to the terms of an unsigned, written contract.  Where the subcontractor had acted as if the purchase order had been signed, the judge ruled that the subcontractor was bound by all of its terms and conditions.

In another recent case, however, there was a different result.  The dispute was between a performing artist and his promoter.  The parties contemplated the release of a new album by the performer.  They reached agreement on the terms of a written contract, but the contract never was signed.  Nonetheless, each party took actions in reliance upon the contract, with the performer informing his fans and adjusting his schedule, and with the promoter advertising, promoting and marketing the contract.  As of a week before the concert, the performer had not released the album, the promoter cancelled the contract, and the performer sued.  The judge ruled if the parties intended to sign a formal writing but did not, this created a presumption that no contract existed. While that presumption could be overcome with “strong evidence,” the judge decided that there was not enough evidence to defeat the presumption and therefore there was no enforceable contract.

General Counsel says:  The purpose of a signed, written contract is to provide each party with certainty of its rights and obligations.  The great producer, Samuel Goldwyn, is credited with saying, “A verbal contract isn’t worth the paper it’s printed on.”  The same is true of an unsigned, written contract.  The particular concerns and contingencies that you want or need in your agreements should be included in the language of the contract.  Don’t leave your rights and obligations to chance; it is an invitation to costly litigation.  Before either party begins performing your contract, make sure it is fully signed.

At DailyGC, we provide legal advice and counsel on the full range of legal problems and legal-related business issues that small businesses and startups routinely face in their management, sales, operations and administration. The following are examples of these kinds of problems. You may use these descriptions on your Priority Issues Identifier Form� or you may write your own descriptions.
Business Contracts and Relations:
� Customer Contracts and Disputes
� Vendor Contracts and Disputes
� Collections
� Bank/Lender Relations and Issues
� Landlord/Tenant Relations and Issues
� Bonding/Insurance
� Nondisclosure and Confidentiality Agreements
� Procurement and Management of Outside Counsel
� Recruiting/Hiring Practices
� Employment Agreements
� Employee Compensation and Benefits
� Employee Manuals, Policies and Procedures
� Compliance with Government-Required Benefits Programs
� Payroll Compliance with Court Orders
� Discrimination and Harassment Claims
� Management and Discipline of Problem Employees
� Terminations
� Unemployment Insurance Claims
� COBRA Procedures
� Hiring Independent Contractors
Dispute Resolution:
� Case Analysis and Assessment
� Mediation/Arbitration
� Strategies for Litigation, Discovery and Negotiation
� Settlement Analysis
General Corporate:
� Entity formation
� Corporate Governance and Record-Keeping
� Shareholder Relations
� Compliance with Governmental Regulations
� Compliance with Corporate Contractual Obligations
� Contract Review, Analysis and Negotiation Coaching