Resources

FROM THE BENCH & BAR
DO I REALLY NEED A WRITTEN CONTRACT?
By J. Marc Replogle

People often wonder if they need a written contract, whether for business or for personal matters. There are certain contracts in the State of Georgia that must be in writing to be enforceable, while others may be oral. What, then, is needed to have an enforceable contract in Georgia?

There is a law in Georgia called the Statute of Frauds, which has nothing to do with actual fraud, but merely lists the types of contracts that must be in writing. Some of the more common contracts that must be in writing include personal guarantees, contracts for the sale of real estate, agreements that are not to be performed within one (1) year, commitments to lend money, and other less common contracts, including, but not limited to, an agreement upon consideration of marriage.

Oral agreements not covered under that statute of frauds are also enforceable in Georgia, subject to certain defenses or limitations that are beyond the scope of this article. The problem with oral contracts is that the specific terms may not be clear, and if there is a dispute, the terms of any oral agreement usually must be proven by the individuals involved in the contract. As time passes, though, the terms of an oral contract may fade in memory. While oral contracts are enforceable in Georgia, the better practice is to put your agreement in writing, even though there is no one form or type of contract.

There was a fairly notable case in Fulton County in the 1990’s about a contract dispute between a rock group and their manager. The purported contract was a circle (a pie) drawn on a beverage napkin with the names of the band members and the manager each written on an equal slice of the pie. As I recall, the manager wanted his share of the millions of dollars the band was making, and the band argued that a pie shape with names inserted in pie slices on a beverage napkin was not a contract. Regardless of how the case was resolved, both parties incurred substantial attorney’s fees in arguing whether they had a contract. Had they just hired an attorney to prepare a contract, they could have saved thousands of dollars spent arguing over a beverage napkin.

Once you agree on the need for a signed contract, consider that there are certain elements that must be in every contract, including, but not limited to, clearly identified parties, mutual assent of the parties, and good and valuable consideration flowing to those parties. Many contracts also have a common format to include recitals; obligations or duties of each of the parties; representations and warranties of the parties; indemnification or release provisions; term and termination provisions; restrictive covenants, including, but not limited to, confidentiality clauses, non-compete clauses, non-solicitation clauses; and many general provisions.

Have you “heard” that non-compete agreements are not enforceable in Georgia? That is not true. They are enforceable if properly drafted. There are certain criteria that must be met when drafting a non-compete in Georgia. There is no one non-compete or non-solicitation clause that covers all businesses in Georgia. Every non-compete clause, though, must be specifically tailored and reasonably restricted with respect to time, geographical limitation, and scope of the activity covered.

In our daily lives, we sign agreements to rent a car, join a health club, or enroll our children in various lessons, sports, and other activities. Have you ever noticed the term by the signature block that states “This agreement is subject to the terms and conditions on the reverse side”? Have you ever read the terms and conditions on the reverse side? Most people do not, but those general terms and conditions are very important. I suggest that you read them before you sign on the dotted line. Failure to read a contract is no excuse if you sign it.

Some of those general provisions include venue (where any dispute would be filed), transferability of the contract, which state’s law governs, limits on liability, where and how notices must be sent, and attorney’s fees, which clauses usually give the prevailing party the right to recover reasonable attorney’s fees in a lawsuit. If that clause does not appear in a contract and there is a dispute in court over the contract, the court usually does not award attorney’s fees to either party unless someone has acted in bad faith, been stubborn and litigious, or filed some type of frivolous litigation.

It is much better to spend a little money up front to prepare a good, enforceable contract than to pay attorney’s fees or damages upon breach or a dispute in terms. Many common contracts in writing include agreements to purchase or sell a business, promises to pay money, employment agreements, consulting agreements, shareholder agreements, construction agreements, license agreements, and personal service contracts. Costs of litigation can often be avoided with a clear, enforceable contract. Unless you can afford to lose that for which you have contracted, that is, if the other side does not give you the consideration for which you bargained, and you have no way of proving what was agreed between the parties, other than your word against theirs, it is much better to execute a contract to clearly set forth the agreement. If you have any concerns, call your attorney and have them review your contract or have them prepare a contract to ensure that you are protected in the eyes of the law.

Marc Replogle is a resident of Cherokee County and practices in the areas of corporate transactions, contracts, and civil litigation, including collection and personal injury. Marc has been in private practice with his own firm since 1997 and has practiced law in Georgia for over 21 years, after earning his law degree from Emory University School of Law in 1988. Marc is currently the president of the Towne Lake Business Association, a member and past officer of the Towne Lake PowerCore Team, and an active member of Hillside United Methodist Church. You may reach Marc at: marc@thereploglesfirm.com.