Posted by & filed under Business Attorney.

If you run a small business that deals with other businesses—and that presumably describes all businesses—it is essential to understand how the law affects your relationships. For example, if your business wants to work on a project with another company, what type of legal agreements do you need? Is an oral agreement and a handshake enough? Or must you always get it in writing?

As a general rule, written contracts make things much easier for all parties concerned. But Ohio law does recognize both oral and written contracts, provided there is sufficient proof of an actual agreement between the parties—what is commonly described as a “meeting of the minds.” This means it is not enough for you to have a conversation with another business owner and simply assume you formed a contract.

No Meeting of the Minds, No Joint Venture

Here is an illustration of this principle from a recent Ohio appeals court decision. The plaintiff is a construction company. The defendant is a general contracting firm. In early 2012, the defendant submitted a bid to build and lease a facility for a third company. The plaintiff and the defendant previously discussed entering into a “joint venture” to complete the proposed construction. However, in its bid to the third company, the defendant used a construction estimate from another firm, because the plaintiff’s proposed amount was “too high.” The third company subsequently awarded a contract to the defendant. As part of this award, the third company also assigned to the defendant an option to purchase the land where the proposed facility was to be built. This option had to be exercised by a certain date.

Shortly thereafter, the defendant created a limited liability company to serve as a vehicle for the still-under-discussion joint venture with the plaintiff. These discussions never came to fruition, however, as the deadline for the defendant to exercise the option expired. The third company terminated its award, but later entered into a new agreement with the defendant alone, who found a different joint venture partner. The plaintiff then sued the defendant, alleging, among other things, breach of their purported joint venture agreement.

The trial court granted summary judgment to the defendant on all claims. The Court of Appeals of Ohio affirmed the trial court’s decision on October 16 of this year. As the appeals court explained, the plaintiff and the defendant never had a legally enforceable joint venture agreement. “At best,” the court said, “the evidence shows that the parties made only an unenforceable ‘agreement to make an agreement.’” There was never any agreement on key terms of the proposed joint venture—such as each party’s respective ownership interest and the estimated costs of construction—and therefore no “manifestation of mutual assent.”

Need Help Negotiating a Contract?

To reiterate the court’s conclusion in the case above, an agreement to make an agreement is not itself a legally binding contract. That is why most contracts are in writing and signed by all relevant parties. If you need help from an experienced Cortland business attorney with negotiating or drafting any type of contract, contact the Law Office of John C. Grundy today.