Is an Unsigned Contract Still Enforceable?

Actions must speak louder than unsigned contract, says Virginia Federal Court.

The failure to obtain a fully signed agreement is not always fatal to a breach of contract claim. However, a recent Virginia federal court case reminds us of the need to ensure signed written agreements are in place as early as possible in a business relationship. At the same time, businesses should be aware that their conduct may demonstrate that they have waived the need to execute a written contract.

Musical artist Cameron Jibril Thomaz, who performs under the name "Wiz Khalifa" (“Mr. Thomaz”), sued concert promoter It’s My Party, Inc. (“IMP”) for breach of a contract that was never signed. Mr. Thomaz engaged The Agency Group to serve as his booking agent for a new tour which would have included a concert at The Patriot Center at George Mason University (“GMU”). The Agency Group then asked IMP to promote the concert, and represented to IMP that Mr. Thomaz would be releasing a new album soon. The Agency Group emailed a contract to IMP and requested that IMP sign and return it to The Agency Group for Mr. Thomaz’s approval and signature, which IMP never did. The contract stated that it would not be binding unless signed by all parties.

George Mason University Patriot Center

Mr. Thomaz argued that the parties entered into a contract for him to perform at GMU and that he turned down an opportunity to perform at a different venue in reliance on IMP’s representations. Moreover, he argued that despite the fact that IMP partially performed the contract by advertising the concert, and that he partially performed by preparing for the concert, IMP refused to pay him and canceled the concert after fans already had purchased tickets. On the other hand, IMP asserted that its interest in promoting Mr. Thomaz’s concert was dependent upon the release of his new album because it did not believe he could otherwise attract a sufficient number of fans to warrant his appearance at the venue. The parties had agreed to sell concert tickets before finalizing the agreement, but as IMP had predicted, advance tickets had sold poorly in the absence of the album release. While IMP agreed to reschedule the concert, the parties were unable to come to mutually agreeable terms and IMP ultimately canceled the concert and withdrew its offer to promote it.

Under Virginia law, a contract can exist despite the absence of a signature if the parties' actions evidence an intention to enter into an agreement. However, if the parties intended to sign a formal agreement but did not, this creates a presumption that no contract exists, which can only be overcome with strong evidence. Since the terms of the alleged contract were unambiguous in that the parties did not intend the agreement to be binding unless signed by all parties, the court presumed that no contract existed. As such, Mr. Thomaz was required to demonstrate strong evidence that the actions of the parties showed otherwise.

However, the court dismissed the complaint after Mr. Thomaz presented little evidence of the parties' conduct during negotiations and almost wholly relied on the unsigned contract itself. The fact that tickets were sold was not enough to prove that IMP intended to enter into a contract given the countervailing evidence, including IMP’s failure to pay the deposit required by the contract and Mr. Thomaz’s failure to contemporaneously object. Finally, the court noted that the contact had an arbitration clause requiring the parties to submit any dispute to arbitration and that if Mr. Thomaz considered the contract to be binding, he would have submitted the matter to arbitration.

Sara Dajani is an associate attorney at the Washington, DC business law firm, Berenzweig Leonard, LLP.   She can be reached at sdajani@berenzweiglaw.com.

The Implied Duty of Good Faith and Fair Dealing: What Does it Mean for Virginia’s Businesses?

The duty of good faith and fair dealing has its roots in the Uniform Commercial Code (“UCC”), which applies to sales and other commercial transactions, and is now recognized at common law in some form in most jurisdictions. Numerous Virginia state and federal courts have held that the implied duty governs all contracts at common law. However, as the common law continues to evolve, it appears that Virginia courts have described and applied the implied duty in a seemingly contradictory fashion. As a result, what protection the implied duty offers in a contract remains unclear. Nevertheless, the implied duty continues to impact business litigation in Virginia and has altered the outcome of several cases. See Sun Trust Mortg., Inc. v. United Guar. Residential Ins. Co. of North Carolina, 806 F. Supp. 2d 872 (E.D. Va. 2011); Wachovia Bank NA v. Ranson Tyler Chevrolet, LLC, 73 Va. Cir. 143 (Roanoke 2007).

Some Virginia courts have held that breach of the implied duty is an independent cause of action, while others have held that it is merely a factor to be considered as to whether a breach of an express contract term should be further considered a material breach. Historic Green Springs, Inc. v. Brandy Farm, Ltd., 32 Va. Cir. 98 (Louisa County 1993) and Virginia Vermiculite, Ltd. v. W.R. Grace & Co. Connecticut, 156 F.3d 535 (4th Cir. 1998); but see RW Power Partners, L.P. v. Virginia Elec. & Power Co., 899 F. Supp. 1490 (E.D. Va. 1995). Moreover, some courts have held that a party may not exercise contractual discretion in bad faith, even when such discretion is vested solely in that party. Historic Green Springs Inc., 32 Va. Cir. 98; Virginia Vermiculite Ltd., 156 F.3d 535.

Often the express contract either does not address the particular dispute at hand, or applying the contract’s express language seems to give rise to an unfair result, which, the affected party will argue, was not anticipated when the contract was made and that the party seeking to take advantage of the omission or unanticipated application of the contract terms is not acting in good faith. Without such an implied duty, parties may defeat the purpose of a contract without breaching the express terms and suffer no consequences. However, the Virginia Supreme Court has cautioned that the implied duty cannot be the vehicle for rewriting an unambiguous contract in order to create duties that do not otherwise exist. Ward’s Equipment v. New Holland North America, 254 Va. 379 (1997). That is, an implied duty of good faith must yield to the express terms of the contract if the two are inconsistent.  

Virginia courts will likely continue to clarify the role of the implied duty of good faith and fair dealing in contract disputes. In the meantime, businesses should continue to be on their best behavior, and litigants and lawyers can look to the implied duty to help protect the legitimate expectations of the parties to a contract and mitigate the often harsh results of classic contract interpretation.

The author, Sara Dajani is an associate attorney at DC region business law firm, Berenzweig Leonard.  Sara can be reached at sdajani@BerenzweigLaw.com.