What constitutes a a legal binding contract?

UPDATED: Sep 30, 2022

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What constitutes a a legal binding contract?

I am a 50% partner in an S-corporation. I want to retire. The terms for a draft of a buyout agreement were written and were supposed to have been presented to an attorney. The buyout agreement was never completed by an attorney or signed by either party. One of the terms of the draft was that I was to receive payments based on sales. During the 1st year of the proposed buyout, 2 checks were received and cashed by me. None of the other 8 terms payment of rent to me, payment for my healthcare, etc.,etc. were complied with by my partner. Is this unsigned buyout a binding contract due to my cashing 2 checks? If so, shouldn’t my partner have to adhere to the other terms?

Asked on April 11, 2017 under Business Law, Alaska


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 5 years ago | Contributor

You can make a strong argument that them sending you the checks, IF the checks did not have some non-buyout purpose (e.g. were not reimbursement of expenses you'd incurred for business) and you cashing them constituted acceptance by both parties of the contract, and therefore that they are now obligated or bound to it. A contract requires 1) a meeting of the minds, or agreement as to the terms; 2) consideration, or something of value given (or given up) by each party); and 3) acceptance, or agreement by everyone to bound.
The consideration would be payment for your ownership interest: you would each give the other something something of value (money or ownership). The mutual agreement would be the draft agreement, which apparently did not have any more objections or changes pending (none were stated), but which was ready for signature. And while acceptance is usually shown by signing, it can also be shown by action or performance--that is, by the parties acting in conformity with the agreement's terms. If he sent you checks that seem to fall under the buy-out agreement's terms (e.g. no other reasons for the check), and you then cashed/deposited those checks, you and he were acting in accordance with the agreement, which would then show acceptance. That in turn would obligate them to the rest of the agreement. While in a case where there is no executed (signed) contract, no attorney can promise 100% that you'd win if you sue on it, you have stated a strong case in your favor, and should be able to sue with a reasonable chance of success.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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