You spent hours working on a new contract for your business, negotiating terms and swapping drafts of the agreement. But time was of the essence and in your rush to get started on the real work, once the terms were set, you and the customer neglected to exchange signatures on the contract.
The project started well enough, but then circumstances changed. The customer wants out of the deal and claims that there is no contract. You want to hold the customer to the agreement. That’s when you realize you don’t have a signed copy of the contract. What now?
Smart Business spoke with Christopher Dean, an associate at Novack and Macey LLP, about how to enforce an unsigned contract for services.
What is a services contract?
A services contract is, as the name suggests, any contract for the performance of services, as opposed to the sale of goods.
Does the distinction between services and goods matter?
It does. Almost every state has adopted a version of the Uniform Commercial Code (UCC), which contains provisions applicable to the enforcement of an unsigned contract. The UCC, however, generally applies only to the sale of goods, not to the provision of services.
If the UCC doesn’t apply, is the contract claim dead in the water?
Not necessarily. An unsigned services contract can be enforced in certain circumstances. The biggest hurdle is proving that a binding agreement exists, despite the absence of a signed contract.
Ideally, you’d have a fully signed document — it is close to irrefutable evidence that you and the customer agreed to the terms of the contract. But even if you don’t, the existence of a contract can be shown in other ways. The trick is gathering as much evidence as possible to show that a contract was formed.
What sort of evidence is useful?
Evidence will differ from case to case. Generally speaking, however, any writing tending to show that an agreement had been reached will be useful in proving that a contract had been formed.
For example, emails, memoranda, notes or even text messages might contain admissions from the customer such as, ‘We’re fine with these terms;’ or an unsigned copy of the contract with a note reading, ‘Here’s the final version.’
Of course, a writing signed by the customer is best, but even a writing by you concerning the contract can have some value. This is particularly true if it was the type of writing that invited — but did not result in — an objection from the customer, such as an email from you to the customer confirming the terms of the contract.
Is there any other evidence that might be useful?
Testimony from people with knowledge of the contract negotiations also may be useful. Testimony, however, is often treated with skepticism, especially when given by someone with a personal stake in the outcome. The key is to be as specific as possible in describing the negotiations and discussions that led to the formation of a contract.
In addition, performance can be strong circumstantial evidence of the existence of a contract — the longer the performance, the better. So, if it’s the case that you performed for only a day before the customer attempted to get out of the contract, the performance may not be very powerful evidence. But if you spent six months performing under the contract without objection from the customer, the customer will have a harder time denying that a contract exists, particularly if you were paid for your efforts during the period according to the contract terms. ●
Christopher G. Dean is an associate at Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected].
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