There is a level of informality that may arise after you deal with a business partner for several years. In the beginning of a relationship, purchase orders and invoices may be completed with strict attention to detail while later in the relationship, a phone call or short memo might suffice. As you may realize, any level of informality becomes an issue when there is a dispute and a breach of contract action is filed in court.
Recently, I ran across a case that involved a company that manufacturered and distributed leather, fur and outerwear. The manufacturer/distributor filed a lawsuit against a large retailer in which it claimed that the retailer improperly cancelled a significant order after the manufacturer/distributor had created the goods. The retailer refused to pay for the order and claimed, among other things, that there was no “signed writing” confirming the order, and thus, there was no binding contract.
In response, the manufacturer/distributor pointed to a number of unsigned documents, including a one-page handwritten note documenting the order that was allegedly written by its sales person while he was meeting with the retailer. The document was unsigned, undated, and did not identify the buyer or the seller.
Ultimately, the manufacturer/distributor lost in court. Both the trial and appellate courts found that the manufacturer/distributor could not provide evidence of a signature authenticating the transaction, which was required by a statute called the “Statute of Frauds.”
What is the lesson to be learned? It is obviously easy to conclude that a signature should be obtained. But, more significantly, it is important for a manufacturer/distributor to train its sales force about basic contract requirements so that the sales team knows the “rules of the road.” We are happy to provide an in-house educational session on these issues if there is interest. Please contact us at firstname.lastname@example.org with any questions or interest.