"Can I enforce this contract?" "Can I get out of this contract?" "Is this contract enforceable?" These are all questions we often hear from clients. Under Georgia law, a contract does not exist nor is enforceable unless the parties agree on all "material" (that means essential, significant and substantial) terms.
The Georgia Court of Appeals recently addressed this issue in recent years in the case of Kitchen v. Insuramerica Corp., 296 Ga. App. 739, 675 S.E.2d 598 (2009). The contract dispute and subsequent lawsuit was between an employee by the name of Mr. Kitchen, and his former employer, Insuramerica Corporation. In this case, Mr. Kitchen sued his former company because he claimed that it had promised him a 25 percent interest in their subsidiary companies in exchange for his employment.
When a dispute arose concerning the parties agreement, the trial court ruled that the parties' alleged agreement to transfer a 25 percent interest in the subsidiaries to the employee was unenforceable because the parties did not have a meeting of the minds on certain essential terms.
The Georgia Court of Appeals disagreed, ruling that in fact, there was a meeting of the minds between the employee and owner that by a certain date, the employee would be assigned a 25 percent interest in the subsidiaries in partial consideration for his employment.
What can we learn from this case about the law in Georgia concerning contracts? Consider the two following points:
1. A contract doesn't exist unless all parties exist on all material terms and a contract cannot be enforced if its terms are incomplete, vague, indefinite or uncertain--hence, the Court will just not enforce such an agreement if it is left to speculate on the parties intent.
2. Nevertheless, an indefinite contract may actually obtain more precision and become enforceable due to the subsequent words and actions of the parties. In this particular case, Mr. Kitchen was lucky that he was able to show such evidence.
The moral of the story is that it is absolutely important to make sure any written contract that you enter into is very clear on all important, essential ("material") terms. If you want to be able to enforce a contract down the road, it is important that these material terms are not left vague, indefinite, or uncertain.
The way to help avoid this problem is to retain a contract lawyer to assist you in drafting a contract. Or at least before you sign a contract, have an attorney review the document to be certain you are not entering into an agreement that potentially could be unenforceable later on.
The other lesson to learn from this case is that even in bad situations where the contract may have been drafted poorly, sometimes the subsequent words or acts may clarify the terms of the contract and make it become enforceable. If you suspect this may be the case, consider obtaining legal consultation to review the contract and particular facts of your situation.
Regardless, anytime you enter into a business agreement with anyone--including a family member or close friend--it always good to get the important terms clearly in writing, signed by both parties, in order to avoid future misunderstandings later on.