Commercial contracts: Actions speak louder than words
Two recent court cases should change the way businesses view commercial contracts, as judges have determined that what someone says or does can amend a contract originally put in writing.
Globe Motors, Inc and others v TRW Lucas Varity Electric Steering Limited and another 
TRW entered into an exclusive supply agreement with Globe Motors to purchase all of its requirements for certain electric motors for cars.
For years, Globe supplied ‘Gen 1′ motors to TRW under the Agreement, but subsequently a second generation, ‘Gen 2′, motor was developed which TRW purchased from a third party.
Globe claimed TRW was contractually obliged to purchase these new motors from them under the agreement, something TRW denied. The Court of Appeal sided with TRW, stating the new motors were materially different to those covered by the agreement.
However, it is the secondary issue which has raised the most interest. TRW had argued that Globe had transferred all of its manufacturing to a subsidiary company in Portugal (Globe Porto), and that the subsidiary was not a party to the written contract. As such, it had not entered into the agreement with Porto.
But the court found that the agreement was varied or waived by the conduct of those involved, who treated Porto as if it were party to the signed contract.
Reveille Independent LLC v Anotech International (UK) Ltd 
The Court of Appeal upheld the Commercial Court’s ruling that the mere act of conduct is enough to change a contract, even though in this case an agreement had not been signed and apparently would have required the signatures of both parties to take effect.
Cookware manufacturer Anotech planned to pay television company Reveille more than $1m for a licence of the MasterChef brand and promotion of its cookware in the US show.
The parties started negotiating a Deal Memorandum Heads of Terms in 2011 with the intention that this would be replaced by a detailed long form agreement.
It was held that despite the specific requirement that the agreement between the parties be executed by signature, the defendant’s subsequent conduct in performing obligations under the contracts meant they were liable to pay all sums owing under the original agreement.
As can be seen, businesses should be aware of their actions to ensure that they do not unwittingly vary agreements, even if there are certain contractual provisions or draft documents in place.
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