WHAT MAKES A CONTRACT BINDING?

Meetings & Conventions: Planner's Portfolio September 2001
September 2001 PLANNER'S PORTFOLIO:

The Law & the Planner

By Jonathan T. Howe, Esq.


WHAT MAKES A CONTRACT BINDING?

Creating a legal agreement requires a lot more than simply sealing a deal

Every day I am guaranteed a phone call from a client who begins by saying, “Jon, I have a contract...” My general response: “Don’t assume you do.” Whether a contract exists is a legal conclusion that has to be decided based upon a series of facts. Too often, what people think is a contract is nothing more than an agreement to agree, or even worse, just a straw in the wind to see if there might be a deal. Let’s define the basics.

THE EYES OF THE LAW
A contract, in legalese, is an agreement between competent parties based upon the genuine assent of the parties supported by consideration made for a lawful objective and in a form required by law. Here’s the breakdown of that unwieldy sentence to see what it really means.

Agreement. An “agreement” is an offer and an acceptance. The offer must be made in a way that expresses a current intent to enter into a contract. It is specific; it is definite; it is concise. What each party will be required to do and the benefits each will receive are clear.

The party making the offer controls the method by which it may be accepted. In other words, if you want to have an acceptance within a certain period of time, that is stated in the contract. If you want to have acceptance by fax, you so state. If you want someone to stand on top of a building and wave his hands over his head at noon on a given day, you so state. If you say nothing about how the offer needs to be accepted, generally it can be accepted in the same manner in which it was made.

The acceptance must be unequivocal and must be consistent with the offer. Changing any of the terms of the offer is considered a counteroffer and a rejection of the initial offer. If you continue to negotiate after the offer is made, you are then in the process of trying to create a new offer and acceptance scenario.

Parties. The term “competent parties” indicates both sides have the authority and the capacity to enter into a contract. Authority is based on the position of the individual, and capacity means he is of legal age and legally competent mental condition.

Assent. The assent of the parties must be manifested in accordance, as noted, with the terms and conditions. Often the hotel sends a proposed contract that really is only an offer, and the meeting planner begins to make changes on it, striking items, revising terms, initialing the changes and sending it back to the hotel thinking there is a contract. It’s not it’s a counteroffer. There is no contract until and unless the hotel has accepted those changes.

Consideration. This term means the contract holds a benefit and a detriment to each of the parties.

The issue here is whether one party has no obligation to perform, and the burden is on the other party. If that is the case, there is no contract. For example, I have often wondered, in a contract that states the meeting planner can get out of it a year out without liability, if there is sufficient consideration for the hotel to abide by the rest of the contract terms. If there is no burden on the planner, could the hotel easily walk away from its supposed obligations without liability? In spite of my musings, consideration generally is not an issue.

Objective. “Lawful objective” merely means what the parties are agreeing to is not a violation of the law.

Form. Contracts can be either oral or written, but in the meetings industry they should be in writing. Because of a legal rubric, the Statute of Frauds, many oral contracts are unenforceable. Without a contract that meets all of these requirements, neither party is legally obligated to do anything, except perhaps to honor their word in good faith.