When Is A Contract Actually A Mere Proposal?
March 30, 2014
When a Contract isn’t a Contract
Several businesses in the past year have put documents they call “contracts” in front of me, for various purposes, and I would say that, maybe, half of them might qualify as an actual, barely-half-decent contract. The rest are other kinds of documents, but they are not contracts, despite what they may be called by those who use them. Often, these documents are merely Proposals. How can you tell whether the document in front of you is a “Contract,” per se, and what can you do about it, if what purports to be a contract is, in fact, something else? Read on and find out.
First of all, what is a contract? A contract is a writing, signed by all the parties, that contains an offer, acceptance of that offer, and a description of the consideration given in the exchange. Though sometimes it is a little complicated to determine whether an offer or an acceptance has been properly given, usually it is not too difficult. Offer and Acceptance are usually exactly what they sound like. Consideration, though, can be a tricky issue. Consideration is simply the quid pro quo (Latin for “this for that”) transferred between the parties in the bargain—it is the money or goods or services the parties exchange in the deal.
What is not a contract? Any document, even if it is a writing signed by the parties, that lacks one of the elements above—offer, acceptance, or consideration—is not a contract. Is an Invoice a contract? No. Is a Receipt a contract? No. Is a Proposal a contract? No. Is a document a contract if it says “Contract” at the top? Not necessarily. Only when a document is a writing signed by the parties, and contains an offer, acceptance of that offer, and a description of the consideration given is that document a contract.
Let’s look at an example.
In the above example document, you’ll notice several problems aside from the “Company Address” typo (the inclusion of which, by the way, seems to be par for the course). For one thing, there is only one Signature Line. So, this is not a writing intended to be signed by both of the parties. That’s the first problem with this “contract.” The inclusion of the drafting party’s details is not a signature, nor is a signature the inclusion of the drafting party’s Company Name / Logo at the top of the “contract.”
This document, despite the fact that it says “Contract” near the top, is really a Proposal for work to be done by Company for Client. Client’s signature at the bottom does not necessarily obligate Client to do anything; as presented, it merely evidences Client has seen this document.[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_tagline_box backgroundcolor=”” shadow=”yes” shadowopacity=”0.1″ border=”1px” bordercolor=”” highlightposition=”top” content_alignment=”left” link=”http://executivelp.com/sign-up/” linktarget=”_self” modal=”” button_size=”” button_shape=”” button_type=”” buttoncolor=”” button=”Request Contract Service” title=”Need Contract Drafting, Editing or Review?” description=”We offer flat fee services starting at only $100. ” margin_top=”” margin_bottom=”20px” animation_type=”0″ animation_direction=”down” animation_speed=”0.1″ animation_offset=”” class=”” id=””][/fusion_tagline_box]
That being said, a contract may later come into existence if Company performs the work described in this proposal. Such a contract, however, would be a unilateral, oral contract. The Proposal above essentially constitutes a solicitation of an Offer (see the three parts of a Contract, above). A unilateral contract is an agreement to pay in exchange for performance. In the case of an agreement using the above Proposal, if there is any, between Company and Client, Client may have an argument that it signed this document evidencing that it had seen the Proposal, but that it rejected its terms and made an oral counter-offer. Because this Proposal is not a contract, the actual contract and its complete terms, between Company and Client is oral. As such, there is little evidence, apart from any evidence pertaining to whatever performance has actually been done pursuant to Company’s understanding of the terms of the contract, that an agreement existed.
So, what happens when Company performs—in whole or in part—on this “contract” and Client refuses to pay? Company most likely would have to sue Client in Court, obtain a judgment, and then collect on said judgment. That extensive, expensive exercise would entail, in part, proving that an oral contract actually existed, proving that Client benefited in some way from the contract, proving the value of the benefit to Client, proving the value of the services rendered or goods provided or both by Company to Client, and alleging a certain amount of damages. In no case, in the U.S.—except for cases for fraud or breach of a Consumer Protection Act-type statute—would Company be able to recover attorneys’ fees, which would likely be substantial.
The moral of the story is, in business, it is always worthwhile to have your contracts properly drafted by a licensed attorney. We all pay for insurance of various kinds in case we have a catastrophic casualty loss, health emergency, auto accident, etc. Having a properly written contract shifts and adjusts liabilities in ways that are beneficial to all the parties that sign them. Additionally, a properly written contract can sidestep the “American Rule” with a “Loser Pays” provision, allowing those who prevail in court to have the costs of their attorney’s fees shifted to the Loser in Court, which encourages quick settlement of cases. Quick settlement means you get paid faster, and you don’t have to wait for a judgment and then go through the ordeal of actually collecting on the judgment—which is often harder than obtaining the judgment in the first place!
If your business is using a document that you suspect might merely be a Proposal, you should have a licensed attorney at Executive Legal Professionals, PLLC (ELP), review it. ELP can review, modify, and / or replace your document with a properly drafted contract for a flat fee. ELP also offers custom packages of ongoing business legal services for a flat monthly rate. Give us a call at 615.669.6566 or drop us a line via our short Contact Form.
This article may be freely reprinted or distributed in its entirety in any e-zine, newsletter, blog or website. The author’s name, bio and website links must remain intact and be included with every reproduction. View general information about this license; or view detailed legal information about this license.[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]