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Negotiating a contract under conditions; subject to signature

Negotiating a contract under conditions; subject to signature

Negotiating a contract under conditions; subject to signature

13.01.2021 NL law

In the pre-contractual phase, professional contracting parties often negotiate under one or more conditions. Several different conditions are common in (commercial) legal practice: “subject to signature”, “subject to approval” and “subject to finance.”

By negotiating on a “subject to signature” clause, Dutch parties agree to be bound exclusively by a written and signed contract (contrary to art. 6:217 DCC).  In Dutch literature, a “subject to signature” clause is generally regarded as a contractually agreed provision. By agreeing such a provision, the parties intend to avoid becoming prematurely bound (to the contract) or pre-contractual liability. Whether or not parties succeed in this is the subject of further enquiry in this blogpost.

Contractually agreed (procedural) provision and Subject to signature

The general principle in literature and jurisprudence is that in case of a (properly and clearly formulated) “subject to signature” clause, there is in principle no conclusion of an agreement and no pre-contractual liability as long as the contractually agreed (procedural) criteria have not been fulfilled. See also Supreme Court 24 November 1995, NJ 1996/162 (Van Engen/Mirror Group), where the “subject to signature” clause interfered with both the conclusion of the (binding) agreement and any liability for breaking off negotiations. Mirror Group had reserved the right (by a letter dated 16 November 1989) to withdraw from the final project at any time; it had not accepted a binding contract until a written agreement had been signed by all parties involved in the project, while at the same time stipulating that it was not obliged to be a party to that ‘agreement’. The Court of Appeal ruled that it was established that such a contract had not been concluded in the case at hand, and also stated that it cannot be said that Mirror acted contrary to good faith by refraining from participating in the project as it had expressly stipulated this. The Supreme Court upheld this judgment.

Under certain circumstances, however, it is possible to depart from the aforementioned general principle; for example, in the case of forfeiture or waiver of rights. In such a situation, reasonability and fairness preclude reliance on the “subject to signature” clause. Dutch case law provides several examples; see Court of Appeal Amsterdam 23 August 2004, NJ 2006/65 (FijiNSS), where the Court ruled that under these circumstances a “subject to signature” clause could not be invoked; the agreement had in fact been concluded, as agreement had been reached on the essentials of the contract and the contract only remained to be signed by the parties.

Based on settled case law, the rationale of the “subject to signature” clause is important with regard to the legal consequences of non-performance of the clause (Supreme Court 20 December, NJ 2014/144 (Staat/Van Gelder).  If the parties clearly envisioned that the contractually agreed provision is decisive for the conclusion of the agreement, that provision may usually only be ignored under special circumstances. However, if the parties only intended the “subject to signature” clause to serve the evidentiary function of what they have agreed to, it is easier to ignore the clause.

Finally, it is assumed that parties are more likely to be bound by a “subject to signature” clause if (for example) an English or American party invokes the clause. In such a case, the law in various English-speaking jurisdictions is a relevant point of departure when assessing reasonability and fairness, as in many cases these jurisdictions do not allow for pre-contractual reasonability and fairness, and thus the parties will not be able to easily ignore a “subject to signature” clause.

Conclusion

In case of a properly and clearly formulated “subject to signature” clause, there will in principle be no conclusion of an agreement, as long as the contractually agreed provision has not been fulfilled. However, under certain circumstances this may vary, and the rationale for the clause can be decisive. In legal practice, it is therefore important to clearly lay down the intention of the “subject to signature” clause in the agreement.

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