7 October, 2019
A contract regulates the conduct of parties through agreed terms and conditions. A signature on the contract will signify the acceptance of a party to be bound by the contract.
In the absence of any signature, what happens then to the validity of the contract? Can a party allege that the contract is invalid or not binding because it’s unsigned?
Acceptance of Agreement Terms by Conduct
Sec. 8 of the Contracts Act 1950 states that the performance of the conditions of a contract will be deemed as an acceptance of one party to be bound to the contract.
Therefore, so long as a party conducts or performs the conditions stipulated in a contract, the law will perceive this as its agreement to be a part of the contract. The Court of Appeal in Heller Factoring (M) Sdn Bhd v Metalco Industries (M) Sdn Bhd [1995] 3 CLJ 5 held that a contract can be enforced despite it only being signed by one party if there is evidence that the other party had elected to be bound by the contract. Part performance by one party, accepted by the other, is an example of such evidence.
Similarly, in Nippon Express (M) Sdn Bhd v Che Kiang Realty Sdn Bhd & Another Appeal [2014] 1 MLRA 558, the Court of Appeal held that an unsigned contract involving the sale of properties was valid despite the failure of parties to sign the agreement. In this case, the unexecuted contract had a clause that stated that the “Sale is confirmed upon compliance with [payment of the 10% of the purchase price]”. As the appellants in this case had paid the 10% of the purchase price, the contract became binding, notwithstanding that the contract itself was never signed.
Acceptance of Unsigned Contracts in Business
The Courts have also accepted the conduct of parties within a specific line of business. In Ajwa for Food Industries Co (MIGOP), Eygpt v Pacific Inter-Link Sdn Bhd [2013] 5 MLRA 85, the absence of signatures in a Sales Contract did not preclude it from being a valid and enforceable contract. It was common knowledge that international agreements between parties from different parts of the world could be performed without the need for signatures so long that there is evidence that parties had agreed on the terms.
However, such principle can only be applied on a case by case basis after looking into the type of business parties are contract in and, most importantly the conduct of both parties.
Key Takeaways
In disputes relating to the validity of unsigned contracts, the conduct of parties will be the primary focus of the Courts. If there is evidence that one party had performed its obligations under the contract, it will be construed as an agreement to be bound by the contract. As such, a party who is of the view that a contract will only be binding upon the signatures being penned down, would be mindful to highlight this to the other party before performing any part of the contract. Otherwise, it would not be unreasonable for the other party to believe that the signature was just a mere formality and that all other terms of the contract had already been agreed to.
As a best practice, businesses should always ensure that there is a clear and express acceptance to the terms of a contract, as relying on non-documentary evidence or evidence of conduct, is not always an easy case to prove.
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
