How One Sentence in a Contract Can Cost You a Business Client

Imagine that you’ve been in talks with a potential client for weeks about having you come on board to plan an event for their company.  You and your client are totally on the same page and are looking forward to planning an epic event unlike anything the company has ever seen. Initial talks suggest that professional acrobats might even be involved {wink}. You send over your contract for services to your client for review, which states:

Both the signed Agreement and the non-refundable deposit must be received in order to book Planner’s services.  This Agreement is an offer that must be accepted by December 5, 2015 by returning the signed Agreement and paying the non-refundable deposit, or the offer shall expire.

The client signs and sends you the contract, and says the check for the deposit is in the mail.  In the meantime, she sends you a few documents to review to get started because the event is just around the corner.  Wanting to impress the client, you don’t wait to receive the deposit and get to researching vendors for the event.

As of December 6th, 2015, you still haven’t been paid the non-refundable deposit. On December 7th, the Client tells you that the event has been cancelled due to budget cuts and they will no longer need your service.  You gracefully remind the Client that the deposit payment is still outstanding.  She says she doesn’t owe you anything because there was never an agreement between you two.

Whaaaaaaaaat?

You have a signed and written agreement from your Client in your hands. Clearly she’s making a mistake.  Not to mention that you’ve been putting time on the event, and have even turned down other work so you could plan this event for the Client.

Clearly she’s mistaken…. Right?

Nope.

This exact scenario happened to someone I know and I don’t want it to happen to you.

So here’s the deal:

To have a legally binding contract, the following elements must exist: an offer, acceptance of the offer, consideration, a writing (sometimes), and competence.  Assuming the last three elements exists, where you fall into trouble here is that you’re missing an acceptance to the offer.

(Although there may be an argument that there was an oral contract or an implied contract, let’s just focus on whether you two had a valid written agreement.)

Let’s take a closer look at the contract.

The contract states that in order for a client to book your services, the client must send you: (1) a signed agreement and (2) the deposit and (3) both of which must be received by December 5, 2015.  This is your “offer” – a proposal to enter into an agreement that is communicated to the Client.  If these required conditions – sending the signed agreement and the deposit don’t take place before December 5, 2015, your offer is no longer “on the table.”  Because your client didn’t return the signed contract AND the deposit BY December 5th, there was no agreement.

So what’s the takeaway?

If you’re going to phrase your contract like the example above and make the offer conditioned on the performance of certain actions by a certain date, don’t start working until the Client has performed those conditions. This may be difficult to do at times, especially when the Client wants you to get started right away on a time-sensitive project, but just know that unless the conditions are met, there is an argument that no contract was ever made.   Then you’ve just run the risk of having done work for a client who refuses to pay you for your services.

Another approach is to phrase your contract so that agreement becomes effective upon the date the parties sign the contract, but then provides that you won’t begin working until you’ve received the non-refundable deposit from the Client. In this example, the agreement is formed when both parties sign the contract. However, it clarifies that your performance of the contract is conditioned upon receipt of the initial payment from the client.