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New Ruling on Contracts Not Signed In Person

New Ruling on Contracts Not Signed In Person

4.6.2013 15:19

Let’s take a closer look at the Court’s decision, which took many by surprise and has many interesting consequences.

To enter into a contract, applicable law requires three steps to be taken: 1) the offering party must make an offer; 2) the recipient must agree to the offer; and 3) the acceptance must be delivered to the offering party. The legal community has thus far viewed these rules as binding for both parties, i.e. they cannot deviate from them even if they wanted to. The statutory requirement does not cause problems in most cases, such as when a contract is executed with both parties present. However, problems may arise if that is not the case.

Take, for example, the case in question. A husband and wife applied for a loan jointly but only the husband was at the bank to sign the documents (a real estate mortgage). To speed up the process, the bank gave the mortgage agreement signed by the bank to the husband, who was told to have his wife sign it and then to submit it to the Land Registry Office. The husband did as he was told and the mortgage (lien) was registered with the Land Registry. The mortgage agreement was then delivered back to the bank.

Was the mortgage (lien) properly established? This was the question the court had to answer.

Past

The husband and wife, who filed the lawsuit, claimed that the mortgage agreement was invalid. They supported their claim by several Supreme Court rulings and by the approach thus far adopted by courts, pursuant to which no mortgage agreement could be concluded when one of the requirements for executing the agreement – delivery of the husband’s and his wife’s signed acceptance to the bank – was not met.
Moreover, if the husband’s and his wife’s acceptance was delivered to the bank with the agreement or if the agreement was officially concluded after the mortgage had been registered in the Land Registry, the mortgage could not have been established in line with the law.

Present

Quite surprisingly, the courts, including the Supreme Court, ruled otherwise. First of all, they stated that the statutory provisions applicable to contracts allow parties to agree that the moment at which the agreement is established can be different from the moment at which the acceptance of the offer is delivered to the offering party.

According to the courts, the bank and the husband and wife did in fact enter into the agreement in question. On one hand, the bank, by giving the instructions to the husband, expressed its desire to be bound by the agreement without the need for the husband and wife to confirm that they accepted the offer and agreed instead that the husband and wife could submit the signed agreement to the relevant Land Registry Office. The husband and wife accepted the bank’s procedure by fully following its instructions. Therefore, the courts stated that the agreement was entered into upon delivery of the signed agreement to the Land Registry Office. The requirement that real estate mortgage agreements must be in writing made no difference.

What does this mean in practice? Should the Supreme Court’s u-turn be welcomed or not? It certainly should, because it allows the parties to adjust their relationships as they see fit, which is entirely in line with private law principles. In the case in question, it allowed the parties to agree that the draft agreement would take effect vis-a-vis the offering party at a moment different than the one on which the acceptance was delivered. Banks are certainly not the only ones who will welcome this change.

Future

The court’s opinion has been included in the rules applicable to contracts to be imposed by the New Civil Code, due to take effect on 1 January 2014. Section 1744 of the New Civil Code reads as follows: “considering the content of the offer, or the practice the parties have established between them, or if it is customary, the party to which the offer is addressed may accept the offer by acting in line with such offer, especially if it provides or accepts performance. The offer shall be deemed accepted at the moment such conduct takes place, provided the time requirement is met.” 

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