The Utah Court of Appeals recently provided a quick and dirty summary of basic contract terms in Lebrecht v. Deep Blue Pools, 2016 UT App 110. The case also provides a primer for creating an enforceable settlement agreement without an attorney. Let’s take a look.
Rules for Entering into a Contract
Here are the basics:
- “Under the principles of basic contract law, ‘a contract is not formed unless there is a meeting of the minds.'” To determine whether there has been a ‘meeting of the minds,’ “the parties’ intentions are controlling.” This means that both parties must both understand and agree to the same terms to be enforceable.
- “Two elements, among others, are necessary to form an enforceable contract: (1) an offer and (2) an acceptance.”
- “An offer is a ‘manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to the bargain is invited and will conclude it.'” I highlight “manifestation” because this is the evidence that an offer has been made. It can be oral, written, or some action that constitutes an offer.
- “For an offer to be one that would create a valid and binding contract, its terms must be definite and unambiguous.” This goes back to the ‘meeting of the minds;’ there cannot be a meeting of the minds on a term that remains indefinite or ambiguous.
- Indefinite: “I will build your house before autumn.”
- Ambiguous: “I will build you a craftsman style house.”
- Definite and not ambiguous: “I will build your house according to the plans you gave me and have a certificate of occupancy issued no later than August 21, 2016.”
- “An acceptance must unconditionally assent to all material terms presented in the offer, including price and method of performance, or it is a rejection of the offer.”
- The point here is that if you attempt to accept an offer but add other terms, your purported ‘acceptance’ is in reality a counteroffer and no contract has been made: “Thus, a conditional acceptance or a proposal of different terms from those of the offer constitutes a counteroffer, and no contract arises.”
- Whoever wants to enforce the contract has the burden to prove that the contract exists and the terms of that contract.
The Lebrecht case provides a nice application of these principles in the context of a settlement of a lawsuit.
Creating an Enforceable Settlement Agreement
Lebrecht is an attorney who sued Deep Blue Pools, the company that installed a swimming pool, barbeque pit, and other landscaping features. He did not represent himself in the litigation but had an attorney. Lebrecht and his wife and the owner of Deep Blue met without attorneys to try to settle the litigation. At the conclusion of their meeting, the parties signed a ‘term sheet’ that purported to establish the basic terms of their agreement.
After the meeting, Deep Blue consulted its attorney and disputed the settlement. Lebrecht tried to enforce it as written. Unbeknownst to Lebrecht, however, the settlement negotiations were recorded by Deep Blue. *Which is legal in Utah, by the way; as long as one person in the conversation consents to the recording, it is permitted.*
Deep Blue’s recording showed that the term sheet was not intended by the parties to be binding, only reflected an intention to enter into a written agreement in the future, and would be subject to input from the parties’ attorneys. The trial court sided with Lebrecht and found an enforceable contract. The Court of Appeals reversed based on the recording and the term sheet, holding that it was “merely preliminary negotiations” and not a meeting of the minds. Specifically, the term sheet was so sparse as to its content that it was ambiguous which party would pay the other, whether the amount on the sheet was a price, payment, or cost, or which one would pay an amount upon signing.