Getting Paid Without a Contract
The Olympics are over. If Michael Phelps was a lawyer, I'd be looking for a new line of work. The nominating conventions are over. If the candidates kept their promises .....what am I saying? One thing is certain, summer is over and it's time to get back to work. In my last post, I wrote about how to get paid under the terms of a commission agreement. In this post, I will focus on how to get paid for goods or services delivered when there is no written contract or no agreement at all. Say, "Yes we can!"
I am currently involved in three cases related to compensation for goods and services where, as far as I can tell, there is no applicable agreement. Two cases involve construction, one government imposed abatement of a rental property and the other construction of structures on someone else's land. A third case involves a finder's fee for delivering a client, work and revenue. The parties that claim to have performed the work are now suing for its value or threatening to do so.
To avoid or mitigate future legal problems, the "best offense is a good defense." This maxim certainly applies to getting paid for work without a written contract or formal agreement. Here, the best defense is making a viable, contemporary, and complete record before there is a problem. Memorize this cheer. "Time is precious. Money is dear. Document the record and have nothing to fear." This practice has particular application to professional services, commissions, finder's fee services, spec work, work sharing, and fee sharing. It also applies to side deals not covered by an existing contract.
The applicable legal principles for one's rights and duties in the absence of a contract are both legal and equitable. Courts will imply a "contract-in-law" if all of the elements of a contract exist though nobody wrote the thing down, added the magic words -"we agree," and signed it. A contract implied-in-law requires proof of five elements, an "offer," an "acceptance" of that offer- not a counter, a clearly stated "price" or "consideration," and, where relevant, the time by which performance is to be completed.
These five elements do not have to be printed on a single sheet or paper or stated in a single conversation. No "handshake" is required. A contract can be formed by a series of emails or conversations. To protect yourself in this type of transaction, you should cheerfully (pun intended) document the existence of the five elements ofthe contract. This is easily done by email requesting confirmation or, less concrete, discussion(s) in front of witnesses with a confirming email. FYI, text messaging is a troublesome media for this purpose.
When contracts cannot be implied by law, they may be "implied-in-fact." Courts will imply a contract based upon the conduct of the parties rather than their words. The contract and its terms are proved by indirect evidence. An example of a contract in fact is a supply relationship. For years, a vendor has delivered supplies to a customer and the customer has paid a determinable price. On week, the vendor delivers the same supplies and the same quantity to the customer who receives them, keeps them but does not pay for them. The circumstances can show that there was an offer, a determinable price, and acceptance. To protect yourself in this type of transaction, you should cheerfully document the history of the relationship and conduct of the parties over the years, i.e., include a bill or invoice with each delivery or provide one shortly thereafter, and photocopy all checks for payment or credit card confirmations.
When the law fails, we must rely upon "equity," or what non-lawyers (read here "human beings") call "fairness." The equity doctrine has several manifestations, "Quantum meruit," which I am told is Latin (not my best language) for "what its worth," "unjust enrichment," and, the more arcane, "restitution." Legal scholars may argue that there are nuanced distinctions between these concepts. Different states may prefer one term over another. However, I frequently see lawyers and judges mix them up, and don't see any point in making this letter any longer than it is now.
The basic concept is this: a person should pay for value for which they willfully receive and benefit. A successful case requires proof of the following claim elements: (1) a benefit was conveyed, (2) the benefit was knowingly and willfully accepted, and (3) it would be unfair to allow the receiving party to keep the benefit without paying for it. To protect yourself in the absence of an actual transaction," you should cheerfully document whether (a) the benefit was conveyed and received; (b) receipt was knowingly and voluntary; (c) it has identifiable value to the recipient; and (d) any additional facts related to the question of fairness. In the commission and finder's fee environment, regular emails simply relating tasks performed, product accepted, and expected compensation goes a long way towards locking up an unjust enrichment claim.
Lastly, things get more challenging when one accepts delivery of a product or service, but does not agree to its fitness for the intended use and/or value. These problems are best avoided by defining the product or service with some detail before delivery. After delivery, disputes can be mitigated, by timely documenting the fitness or value issues with photos, witnesses, or descriptions and, either a timely return or complaint and demand for remedy.
To close, documentation of the elements of a transaction is not nearly as troublesome as some might think. It certainly is not as troublesome as paying a lawyer good money to litigate a case which good documentation could have either avoided or simplified.