Zach S. Whitney
Imagine that a company has furnished goods or services to a customer who refuses to pay. Ideally, that company would have a signed, written contract clearly setting forth the customer’s payment obligations. If so, the company has a straightforward path to obtaining a judgment and collecting the amount the customer owes. It is not uncommon, however, for no written contract to exist. Does a seller have recourse where the customer refuses to pay and there is no written agreement? Under the law in Wisconsin and most other jurisdictions, the answer is often “yes.”
Best practices dictate that contracts be in writing and signed by the parties. In a perfect world, the ultimate product of negotiations would be a written contract containing all the material terms to which the parties have agreed. But the real world is far from perfect.
Recognizing this, Wisconsin law contains no mandate that contracts must be in writing. As a general rule, oral contracts are enforceable. Exceptions to this general rule are plentiful; real estate contracts, for example, must be in writing, as must contracts for the sale of goods priced at more than $500. But there are exceptions to these exceptions. For instance, once a buyer receives and accepts goods, an oral contract for the sale of those goods is enforceable even for goods priced at more than $500. In short, while the value of written contracts should not be understated, a buyer is not typically absolved of its payment obligations merely because no such written agreement exists.
The method of establishing liability where no written contract governs depends on the specific facts of a given transaction. In the twenty-first century, few if any agreements are the product solely of the “handshake deal” depicted in popular culture. Nearly all transactions have a paper trail of some kind, although these days that trail is largely created and stored electronically. In business settings, email communication continues to be the most prevalent form of documentation, but text messaging, social media communications and instant messaging applications are becoming increasingly popular. Regardless of their form, electronic communications between the parties to a transaction are often vital to establishing liability, especially where a written contract is lacking. Businesses are well-advised to have electronic communication retention policies in place to ensure that essential communications are stored for future reference.
Such communications may be sufficient to demonstrate an enforceable contract by evidencing the essential terms and the parties’ intent to be bound by their agreement. But even where the communications fall short of establishing a contract, all is not necessarily lost where goods or services have been committed to a transaction. On the contrary, the law affords the aggrieved party several avenues of recovery where no enforceable contract has been formed.
Where a seller has conferred a benefit on another by providing that party with goods or services for which no payment has been made, the doctrine of unjust enrichment typically allows the seller to recover the value of the benefit conferred despite the fact that there is no contract. In pursuing such a claim, communications between the parties (often in electronic form) that demonstrate that the beneficiary acted with knowledge or appreciation of the benefit received are critical pieces of evidence. When the transaction is a sale of goods with a price of $500 or more, a seller may look to the provisions of the Uniform Commercial Code to enforce an unsigned contract where the goods have been delivered and accepted by the customer (commonly referred to as a “claim for goods sold and delivered”).
Similarly, when valuable services have been performed for another but no payment has been made, the doctrine of quantum meruit—a Latin phrase meaning “as much as he deserved”—enables the provider to recover the value of the services performed without a contract. The key to such a claim is evidence that the party who received the services had requested them from the providing party. Such evidence is often found in the parties’ electronic communications.
Promissory estoppel is a third avenue for potential recovery where no contract exists. The doctrine of promissory estoppel allows one party to enforce a promise made by another party, when the first party relied on the promise to their detriment. This is common in construction contract bidding. General contractors often rely on quotes from subcontractors and suppliers when bidding on projects. Those quotes are rarely enforceable contracts, and often are evidenced only by oral communications. Nevertheless, the law recognizes that subcontractors and suppliers are bound by the quotes they provide so long as they knew that the general contractor would rely on the quote in submitting a bid. Electronic communications between the general contractor and the subcontractor or supplier reflecting such an understanding are often vital to establishing liability.
The easiest way to prove damages where one party has breached an agreement by refusing to pay or otherwise failing to perform is to point to a signed, written contract. Nevertheless, the law recognizes that parties do not always memorialize their agreements in a formal contract. Not only are oral contracts often enforceable, but even where there is no contract at all, the law can afford recovery for goods and services provided and promises relied upon. Electronic communications between the parties to a transaction are increasingly becoming essential to establishing such liability. This is yet another reason why businesses are wise to protect their interests with up-to-date policies concerning the retention of electronic communications.
If you would like to discuss whether an agreement you entered into without a formal written contract is enforceable, or have other questions about collecting money owed when the paperwork was less than perfect, please contact KMK Attorney Zach S. Whitney at firstname.lastname@example.org or (414) 962-5110.