Overview

It's easily done: following months of negotiations, a draft contract is ready for signature but other things take priority, work begins and the contract never gets signed. Six months later, a dispute arises – but, as the draft hasn't been signed, it isn't binding.

Or is it? A recent Supreme Court ruling shows how an unsigned draft could nevertheless be binding, and how contractual disputes are generally easier to resolve with a signed agreement in place.

The dispute

The well-known yoghurt manufacturer Müller required a new automated packaging system. It sent its chosen supplier, RTS, a relatively short letter of intent. This stated that a detailed contract would be signed within 4 weeks, based on Müller's standard terms. In the meantime, RTS started work.

Agreement was reached on more detailed terms but these were never signed. A dispute arose because the equipment did not work as well as Müller had expected; it refused to make any
further payments to RTS.

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