Bluegrass Business Law

December 31, 2007

Get it in writing (or where’s the beef)

It is true that a contract can be formed orally; no writing is required to create a contract. Some contracts, though, are unenforceable as a matter of law without being in writing. For example, a contract for the sale the real estate is unenforceable unless it is put in writing. Many contracts are created AND are enforceable even if they are never written down. I would not recommend relying on oral contracts in business dealings though. The recent Kentucky Court of Appeals case Quadrille Business Systems v. Kentucky Cattlemen’s Association, Inc., 2005-CA-002621-MR & 2006-CA-000009-MR (December 28, 2007)(to be published) highlights the value of writing down agreements.

Quadrille and Cattleman’s did agree to work together to obtain a grant from the Kentucky Agricultural Development Board (“Board”) to establish and manage a cattle cooperative. However, Quadrille failed to make it to the jury on their breach of contract claim. This was because Quadrille “remembered” the contract one way and Cattleman’s “remembered” it quite another. Neither remembered the oral agreement to have sufficient details to establish definite terms of a contract. The Court noted that even Quadrille’s alleged terms “demonstrate[d] its lack of specificity and defiteness.” Id. at page 6. For example, there was no agreement as to how or what Quadrille would be paid for their efforts. This was fatal to the breach of contract as well as the quantum meruit claim.

Quantum meruit is a legal failsafe doctrine designed to prevent one party from getting a benefit from another party for free when some kind of compensation had been expected. An example would be if a homeowner contracted for a worker to install an inground pool and insisted that the pool be tiled. The worker digs the pool, pours the concrete, but gets sidetracked with a more lucrative job. The homeowner gets tired of waiting and hires someone else to tile the pool. While the homeowner may want to pay the first worker nothing because they failed to finish the job, they will have to compensate him for the work done though not the full contract price. The value of the work done is its quantum meruit value. Quantum meruit does not even require a contract to exist.

In this case, Cattleman’s did end up with a grant sans the elements that Quadrille wanted. Quadrille claimed they should be compensated for the work they put into the grant proposal since it benefited Cattleman’s. They actually won this from the jury, but the Court of Appeals said the trial court should have given Cattleman’s a directed verdict (taken it out of the jury’s hands and denied Quadrille’s claim). This was because there was no compensation complated in whatever agreement had existed between the two parties. In fact, Quadrille admitted they did not keep track of the time they spent on the project because they anticipated benefiting from the grant they hoped to recieve.

Since Quadrille’s only anticipated income from their work was the ultimate business deal with the Board, and there were no terms for compensation from Cattleman’s, they could not get quantum meruit relief. Once again, the absence of definite provisions to the alleged contract was fatal.

Finally, Qaudrille also claimed Cattleman’s had a fiduciary duty to them that was breached. The Court rightly found no fiduciary duty arose from a simple, arms length business deal. There has to be some mutual understanding of confidentiality or the undue exercise of power or influence. Neither existed here.

So, it is always best to commit an agreement to writing. The exercise of doing this allows for misunderstandings to be exposed and corrected. Having a written agreement also supplies evidence of what was meant in the first place if a later disagreement arises. In some cases, a writing is necessary to enforce an agreement. So, get it in writing.

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