While the formalities may vary from business to business and depend on the size and nature of the transaction, contract formation is fundamental to any deal. All parties must be aware of and mutually consent before a sales pitch or product/service discussion becomes a binding contract.
The outline of contract formation is generally that one party makes an offer that is accepted by the other party, resulting in exchange of something of value (legal consideration). Keeping this simple formula in mind can prevent confusion as to whether a party has enforceable rights and obligations, or disappointed expectations. It will also help you know when you have something less than a deal, such as a letter of intent, memorandum of understanding, terms sheet, proposal, request for proposal or a non-binding agreement in principal to be later memorialized.
Clarity is key. Did you buy a lot (many) of shares or a lot (100) of shares? Does “at market” mean the day of delivery’s price? Be sure you understand the offer being made and its acceptance, as well as any conditions. Also, be sure the offer and acceptance contain all of the critical terms and that any implied terms of the trade are understood by both parties. While industry customs, the parties’ past practices and the Uniform Commercial Code can supply the many of the unstated terms of your deal, be sure you know what they are and which will apply.
While the law requires certain contracts be in writing in order to be enforceable, like the sale of real estate, leases over one year and guarantees, the written document(s) can be very informal. In most circumstances the deal can be reached by merely a hand shake or telephone approval. In light of the easy access to e-mail, text and other written and electronic communication, written confirmation should always be considered and standard terms and forms used. But, be wary of subsequent writings that may attempt to modify or supplement the general terms of the deal. Immediately review them to confirm acceptance or rejection, as silence is often considered to be assent.
Another aspect of making a deal that is often overlooked is determining who are the parties; who receives and who provides the benefit. This can often be confusing when there are multiple corporations, entities, individuals or third party beneficiaries to a contract. It is critical to know who is entitled to performance from whom, so the parties can pursue proper remedies when there is disappointment. Names, contact information and the parties’ relationships must be clear.
At Brooks, Tarulis & Tibble, LLC we assist advise clients on contract formation and standard transaction documents, as well as enforce to existing contract rights. If we can assist you, please contact me.
Douglas C Tibble
dtibble@napervillelaw.com
