Many people think a contract is a written agreement signed by two parties. True! But you can also create a legally binding contract accidentally through your words and deeds, and so can businesses. Business practices can create a contract or effectively change the terms of a written contract.
The body of law that dictates whether or not a contract must be written is called the Statue of Frauds and the Statute of Frauds varies from state to state. The Statute of Frauds is used to prevent fraud by requiring certain specific agreements to be in writing. The Statute of Frauds often includes: agreements that cannot be complete in one year, agreements for the sale of goods over $500, marriage contracts, executor fees, and suretyship. Theoretically, if your state’s Statute of Frauds does not list your type of agreement, then it need not be in writing. However, your state judiciary, when interpreting the Statute, can create other circumstances in which a written contract is required. (For example, Massachusetts case law dictates that employment placement service contracts formed in the Commonwealth of Massachusetts must be in writing, even though this type of contract is not specifically delineated in Massachusetts Statute of Frauds. MGL Ch 259.) https://malegislature.gov/laws/generallaws/partiii/titlev/chapter259
Statute of Frauds requirement
Everyone knows it is good business practice to have your contracts in writing regardless of applicable Statute of Frauds requirement. But savvy business owners must take that a step further. Your entire operation must meet the performance requirements of your statutes, written contracts and case law. Consider this example from a case I litigated a few years ago: Case law stated that business practices over a year may dictate terms of the contract. We had a contract that called for invoicing at net 30 but an accounts receivable department that did not initiate invoices until day 45-60. In this situation, even though we had a written contract and contract law that would support net 30, there is also contract law to support 45-60 day pay and even a very viable legal argument that the business practice created ambiguous payment terms so payment should be within any “reasonable time”. This is a good example of the importance of having a written contract and understanding the nuances of your responsibilities under that contract to avoid the pitfalls of contract litigation. Written business practices when they conform with your written contracts, could legally protect you from individual employee non-performance. So, while it’s important to have written contracts it is equally important to have a qualified contract attorney review your contracts with your management team.
If you have questions about your B2B contract, contact Amy Frisella at Frisella Law Firm today.
