Contracts make promises legally enforceable, facilitating business transactions by fixing the terms of an agreement and providing legal remedy if the other party fails to hold up its end of the bargain. Sales contracts must contain four elements to be valid – an offer, consideration, acceptance and a meeting of the minds. With written contracts, a signature or initials typically serves as proof that each party wants to enter into a legal contract; however, under certain circumstances, a contract signed only with initials might be voidable.

How Courts Examine Contracts

When a contract is challenged in court, the court typically will use a reasonable-person standard to interpret the contract. The reasonable-person standard simply asks the question, “what would a reasonable person think this means?” Furthermore, the court examines contracts in their entirety and considers the context outside of the written document.

Placement of Initials

For sales contracts that are only initialed, and not signed, the placement of the initials provides key information as to whether the initials were intended to show assent to the contract. Many sales documents include slots for initials next to numerated terms or disclosures, and if the only written assent is the presence of initials in those slots, then it is possible that the party agreed only to those terms, but objected to something later in the contract and so refused to enter into the contract.

Absence of Signatures

Additionally, the presence or absence of signatures might determine how a contract that is only initialed is interpreted. It would not raise anyone’s suspicions that a document was not signed if there were no line asking for a signature. However, if the document had empty lines asking for signatures, the court might look further to determine whether initials constitute agreement to the terms.

Conduct of Parties

Courts take the conduct of parties into account when interpreting a contract. If both parties carry on as if the contract were in force, then that provides evidence that they intended the contract to be carried out. Conduct that implies the party intended agreement to the contract could sway a court to rule that the initials made the contract valid.

Statute of Frauds

Many states recognize verbal agreements as oral contracts, fully enforceable like a written contract. The Statute of Frauds designates that certain types of contracts, including the sale of real estate or goods valued at over $500, must be written to be valid. If the sales contract is subject to the Statute of Frauds, no evidence of an oral contract can be taken into consideration when interpreting the meaning of the initials. If the court rules that the initials do not prove a party’s assent to the contract, then that party has the ability, but not an obligation, to declare the contract void.

Considerations

Apply extra scrutiny to your procedures for any sales contracts that fall under the Statute of Frauds, making sure that you and your agents get all necessary signatures. Consider including explicit language in sales contracts that specifies whether initials are sufficient to prove assent. If you intended not to enter into a sales contract that you started initialing, make sure you act as if the contract were not in force – for example, refuse delivery or refund any payments from the other party.