Seller’s practice is to obtain written and customer-signed sales agreements. Seller delivers a product to a customer without a signed agreement based on a request by the customer to fill an urgent need.
Can an enforceable contract exist if Seller has not obtained a signed agreement consistent with its customary business practice?
Analysis Product delivered without a written contract
It depends…….. and here is the reasoning: Product delivered without a written contract
Seller needs to determine if a legally enforceable contract exists without a signed agreement. The fact that it normally obtains written agreements does not necessarily mean an oral agreement is not a contract. However, Seller must determine whether the oral arrangement meets all of the criteria to be a contract.
Example: Assessing the existence of a contract: No written sales agreement
Shoe Manufacturer S holds products available to ship to customers before the end of its current fiscal year. Shoe Shop T places an order for the product, and S delivers the product before the end of its current fiscal year.
S generally enters into written sales agreements with this class of customer that require the signatures of the authorised representatives of both parties. S prepares a written sales agreement and its authorised representative signs the agreement before the end of the year. T does not sign the agreement before the end of S’s fiscal year. However, T’s purchasing department has orally agreed to the purchase and stated that it is highly likely that the contract will be signed in the first week of S’s next fiscal year.
After consulting its legal counsel and obtaining a legal opinion, S determines that based on local laws and legal precedent in T’s jurisdiction, T is legally obliged to pay for the products shipped to it under the agreement, even though T has not yet signed the agreement.
Therefore, S concludes that a contract exists and applies the general requirements of the standard to sales made under the agreement up to the year end.