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We have all heard that oral contracts can be valid and binding, and recently the High Court of Justice in Grant v. Bragg (Jan. 22 2009) has affirmed that an oral contract, and even an unsigned contract, can be binding if there is partial performance. Under the doctrine of part performance, the plaintiff can establish the existence of an oral contract through emails, text messages, and even mere post performance. Following an oral contract, if one of the parties begins to perform his or her end of the bargain, such acts may provide reliable evidence supporting the existence of an oral contract. This evidence may be bolstered by emails and text messages.
But what about unsigned contracts? Well, in Grant v. Bragg, the High Court found that a written unsigned contract was binding because the parties had acted as if the contract had been finalized. In Bragg, both Grant and Bragg had formed a company and entered into a buy-sell agreement (a.k.a. share agreement) pursuant to which either shareholder could buy out the other at a set price based on a formula in the event of a dispute. Needless to say, a dispute arose and Bragg offered to buy Grant's shares. Although a formal written contract was prepared by a law firm, neither party had signed it and both parties appeared to be continuing negotiations. However, the Court found that Bragg had already seized control of the company and that the email exchanges between the parties at the time were sufficient to bind them to the essential terms of the draft contract prepared by the law firm.
It is therefore important for parties engaged in contract negotiations to: (1) refrain from performing any work until a final written contract is prepared and executed; and (2) ensure that all pre-contract correspondence contains a statement that any deal is "subject to the execution of a signed written contract."
If your company routinely engages in long term, or multiple phase projects, that often require some advance, as is often the case in tech related projects, the parties should insist on the execution of a short letter agreement that clearly sets forth the terms of the limited scope of work to be performed in advance of a signed written agreement. Such a letter and all correspondence regarding the agreement should also reiterate the fact that the parties are not committing to the complete project's scope, regardless on any email correspondence to the contrary, until the parties execute a formal written contract addressing each phase of the project.
If you have any questions, or would like further information on contracts, please call 818-849-5206 or Email Us.
© 2009 Melissa C. Marsh. All Rights Reserved.
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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.