In this week's Freedom Friday blog and email newsletter, I want to talk about an interesting topic, and a question that is never asked but should be asked by small business owners. In today's Freedom Friday blog and email newsletter, I'm answering the question, “How can you form an accidental contract?” That's right, today I want to talk about how contracts are formed accidentally where they are not intended. Yes, this is a legal issue, and it is more common than you think.
First, I want to go over the basics of what makes a contract, legally. The only things required for a legally binding contract are an offer, an acceptance, mutual consideration, and an agreement to be bound. What's not required (and this may surprise you) is a physical document (an oral contract can be legally enforceable), notarization, or even signatures. Courts will look at the words and the conduct of the parties to determine if there is a legally binding contract, not if there is a document (signed or otherwise). In fact, it is the law in Oklahoma that mere use of a credit card is a legally binding contract with a credit card company, even if the credit card holder never signed a credit agreement or even signed an application for use of the credit card.
So, how can you form an accidental contract? In today's Freedom Friday blog and email newsletter, I want to share three (3) ways in which you can form an accidental contract. Avoiding these areas will help you make sure your contract is intentional.
The first way in which you can form an accidental contract is by failing to expressly state in your negotiations that the other party's performance is not an acceptance, and that a written agreement between the parties must be signed by the parties in order for the contract to be valid. Many contracts are negotiated via email between the parties, or between the parties' lawyers. If the emails reflect an agreement between the parties, then there could be an implied contract which is not intended. Because acceptance is a key element to any contract, requiring written acceptance and signatures early is an easy way to avoid this problem of an unintended accidental contract.
The second way in which you can form an accidental contract is when you are negotiating a contract via email, using terms such as “offer,” “accept,” “I agree,” or “no problem.” Any of these words in an email can be used to demonstrate an offer or an acceptance in a court of law. If I am negotiating a contract on behalf of a client (and I do this often, especially in negotiating settlement contracts), I don't use those terms. Instead, I create a new document, which is attached to the email, as a proposal. That document is then edited by the lawyers who are representing the parties.
The third way in which you can form an accidental contract is by not being explicit on whether the final acceptance of the contract is contingent based on a third party, or some other event, like approval of upper management, or completion of due diligence. A letter of intent should never be construed as a final contract and such should always be disclaimed. If approvals of upper management or third parties are involved, the parties or the lawyers representing the parties need to say so intentionally early on to manage the expectations of the parties and avoid an accidental contract.
Thinking about starting a small business? Or maybe your small business is having issues with contracts, leases, business partners, collection issues, or experiencing other barriers to growth? Please contact me at [email protected] to schedule a FREE strategy session.
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