RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH [2010]...

Facts

• RTS Flexible Systems Ltd agreed to supply and install automated packaging machinery for Molkerei Alois Muller GmbH’s yogurt facility.
• The parties conducted negotiations and exchanged a letter of intent but did not finalize or sign a formal contract document.
• Despite the absence of a formal contract, RTS began and nearly completed machinery installation work.
• A payment dispute later arose, raising the question of whether a binding contract existed between the parties.
• The parties had discussed and acted upon machinery specifications, installation timeline, and payment terms, while some contractual details remained unresolved.

Issues

1. Whether a binding contract could exist between RTS and Muller in the absence of a final signed agreement.
2. Whether the actions and conduct of the parties objectively demonstrated agreement on the core terms required for contract formation.
3. How to distinguish between binding conduct and non-binding preliminary negotiations in the context of contract law.

Decision

• The Supreme Court held that a binding contract had been formed through the parties’ actions, despite no final signed agreement.
• The Court found that, by beginning and continuing work, the parties objectively demonstrated agreement to core terms, including machinery specifications, timeline, and payment provisions.
• It was determined that the unresolved details did not prevent contract formation since the essential terms were clear and sufficiently agreed upon through conduct.

Legal Principles

• A valid contract may be concluded based on the parties’ actions if conduct objectively demonstrates agreement to core contractual terms.
• A contract can arise even in the absence of a signed document if parties behave in a way that a reasonable observer would interpret as acceptance of binding obligations.
• The assessment of contract formation depends on observable conduct rather than undisclosed private intentions.
• Distinction must be drawn between preliminary negotiations and conduct evidencing intention to be legally bound.

Conclusion

The Supreme Court clarified that binding contracts can be formed through actions when parties’ conduct indicates agreement on essential terms, even without a signed document. This ruling reinforces the importance of documenting key terms and managing negotiations carefully, as commercial obligations may arise from conduct alone.