by Janet L. Eveland, Esq.
In my practice, businesses often come to me about a problem they’re having with another businessperson, a supplier, or a business partner. Clients ask me:
“They can’t do that, can they?”
The answer to this question, and often the root of the problem, may relate back to when the parties first started their business relationship.
- Did you have a conversation in which they agreed to do something and you agreed to do something? Did you send any emails about this or keep any notes?
- Did you write something down and both of you sign it?
- Did the vendor send you an invoice which included some terms you didn’t read?
In legal terms, in order to make a binding contract the parties must have three elements:
- Offer – An offer proposes a certain transaction. For example, if you agree to pay me $10 I will wash your car.
- Acceptance – Acceptance means that you agree to the offer. For example, yes, I will pay you $10 if you wash my car.
- Consideration – Generally paying money, forbearance from enforcing a legal right, or valuable service performed will constitute consideration. For example, I washed your car so now you owe me $10.
Once these three elements are present, the parties have entered into a contract. Whether the binds the parties and what the parties are bound to, depends on the contract’s terms. When businesspeople enter into an agreement they frequently assume that the other party knew what they were thinking or it was obvious. But it’s often not either so problems occur.
In practical terms, a contract (whether from a conversation or something in writing) must include:
What – what exactly did the parties agree to?
Often the parties are not as clear as they should be. In the example above, the parties agreed that if you wash my car I will pay you $10. Maybe you offered to wash my car for $10 because you thought I owned a Cooper Mini but when you get there I own a Humvee. Do you still have to wash my car for $10?
When – when did they agree to do it?
There was no time that the parties agreed to, it could be this afternoon or next year. So probably you can’t show up to wash my car next year and still expect to be paid $10.
How – how are they going to do it?
The parties did not agree on how the car was to be washed. Perhaps you intended to send your kids over with a bucket of water and a sponge while I thought that you were going to do it yourself because you own a car detail business.
The car wash scenario is a simple one to illustrate basic problems which might arise but think of these more complex situations which happen all the time in business:
- Purchaser orders 10 PVC pipes for $100. The pipe is delivered with an invoice that states if the $100 is not paid within 10 days it will accrue interest and attorney’s fees. The pipe is low quality pipe. Seller refuses to take back the pipe and Purchaser refuses to pay. By accepting the invoice and the pipe, did the Purchaser agree to pay $100 with interest and attorney’s fees?
- Purchaser agrees to buy a business for $100,000 but after paying the $100,000 the purchaser discovers that the landlord is intends to evict the business and never agreed to the transfer to Purchaser. Can the purchaser get back the $100,000?
- Tenant rents retail space but the furnace stops working 3 months into the lease. Does the landlord have to pay for the new furnace?
Before you make an agreement, think what, when, and how. A good contract is one which raises issues before the contract is signed so that the parties know the answers to these questions before they happen. Having an experienced attorney draft your contract can make all of the difference in your business success.
