Agreements, simple or complicated, lay out the framework of an arrangement between parties. It may be as simple as someone filling sand for someone’s back yard or as complicated as fulfilling.
We have all heard of the saying “he says-she says”. Absent an agreement, the “he says-she says” can become a problem, especially for the grieving party. We have heard of prenuptial agreements, separation agreements, commercial agreements, confidentiality agreements, and a plethora of other agreements. It is conceivable to draft up an agreement for any given situation.
For an agreement to form, the basic elements of (a) offer (b) consideration and (c) acceptance must be met. There must be a meeting of minds. Once it is determined that an agreement has been formed, then the obligations that flow from one party to another must be met. A breach of any of the conditions can give the non-breaching party the right to terminate the agreement, and depending on the circumstance, sue for direct damages.
Why have an agreement?
Think of an agreement as the spare change you carry in your back pocket. A well drafted agreement will protect you from both predictable and non-predictable situations.
Take the following example: Party ACME requests Party ZULU to build plastic moldings for its new telephone devices. There is no agreement or any other written documentation for the order. ZULU has to subcontract the work to another party. ZULU does not request advance payment or a deposit. Three months have passed and ACME found another supplier for half the cost. ZULU ships the products to ACME, but ACME refuses the shipment. It claims that four months was a long time for delivery, and it terminated the order verbally 3 weeks before. ZULU has paid off its subcontractor.
Who is at fault?
Litigation lawyers will furiously debate on behalf of their clients. If there is no agreement, ACME may be off the hook completely and ZULU has lost significant amount of money. If a verbal agreement has been found, is four months considered an unreasonable amount of time? Can ACME still terminate a verbal agreement?
Absent an agreement ZULU may have not been able to protect its interest. Therefore, an agreement between the two parties is not only necessary, but the agreement should be drafted such that both parties meet their obligations. ZULU would want to ensure that at least some payment is made up-front. Both parties would have deliverables timelines. If it was agreed that absent unforeseen circumstances (e.g. low supply of raw products) ZULU were to deliver the products in three weeks, then ACME can terminate the agreement, but it would also want to make sure that any deposit it paid was returned in full.
As it can be seen, a small contract can lead to a myriad of problems. It is very important to enter into an agreement, no matter what the nature of the business relationship. Some examples of agreements include:
The list is not exhaustive, but the point is that where one party wants to make sure its interests are to be protected, the best form of protection is an well-drafted agreement. Contact Anurag Gupta Professional Corporation to see how we can help protect your business interests.