Why get your contract in writing. Part I.
Because otherwise, your contract might not be enforceable in court.
Many people might tell you that if an agreement isn’t in writing, there’s no contract. That’s not strictly true. Only certain types of contracts must be in writing. Contracts in land, for one. Contracts about marriage, for another. Contracts where one acts to guarantee another person’s debts, a third. Other than those and a few others, many contracts can be verbal. The difficulty is in enforcing a verbal contract when the court does not find it sufficiently definite.
Here’s an entertaining example involving TV talk show host Ed Schultz. In Queen v Schultz, 747 F.3d 879, an employee of NBC sued television commentator Ed Schultz for breach of agreement. Michael Queen had approached Schultz, then a radio talk show host, to see if Schultz would be interested in partnering with him to develop a television talk show with Schultz as host. The parties dispute what happened next, but Schultz did end up with a contract on MSNBC to host “The Ed Show” on weekday evenings.
The negotiations for “The Ed Show.”
According to Queen, he had asked Schultz whether anyone was working with him to make a TV show happen. Schultz replied, “No. Now you’re it.” Beginning in February 2008, Queen made a demo reel of Schultz’s guest appearances on various television shows and enlisted Schindler, a former NBC news director, to partner with them. In a series of telephone conversations and e-mail exchanges, the parties discussed ownership percentages in the partnership: the proposal, that each party would receive salaries and then would split profits, 25% each to Schindler and Queen and 50% to Schultz. In an e-mail from March 5, 2008, Schultz wrote “I will agree to a 50-25-25 percentage formula of profits after expenses of the show. Each of us will have a salary for working on the show although that needs to be figured out.” Negotiations dragged on, and Schultz refused to sign a written contract or fix salaries. Schindler decided to leave the project because he thought Schultz would not honor any verbal contract.
A show is developed and sold, but the talent backs out at the last minute.
Queen persevered though and pitched the idea of a television show starring Schultz to NBC and MSNBC’s executives that spring. Queen also rented a studio at NBC and recorded a pilot episode, paying $11,000 of his own money to do so, although Schultz had told Queen that he and his attorney would pay for the production of the pilot. Queen sent the pilot to a local television station that agreed to pick it up for spring 2009. The deal provided that Queen and Schultz would pay a fixed fee to the station and would themselves own the half-hour time-slot on Sunday mornings, the station having the option to buy up the rights after six months. In March 2009, just weeks before Queen and Schultz were to begin production of the local program, Schultz backed out and accepted an offer from MSNBC to host “The Ed Show,” without Queen.
Queen sued, but the district court granted summary judgment to Schultz under breach of contract and under a partnership theory. Queen appealed.
Was there a verbal agreement to split profits? If so, what were the parties splitting?
Under District of Columbia law (the law of the contract here), an enforceable contract requires both (1) an agreement to all material terms, and (2) intention of both parties to be bound. The “material terms” of a contract generally include subject matter, price, payment terms, quantity, quality, and duration. The court noted that the material terms need to be sufficiently definite so that each party can be reasonably certain about what it is promising to do or how it is to perform, although the terms did not need to be fixed with complete certainty. The district court had dismissed the contract claim, finding that Queen and Schultz never agreed with reasonable certainty on several material terms, in particular, the compensation to be paid to Queen, and that none of the e-mails demonstrated final agreement of the 50/25/25 split.
The appeals court noted that the lack of a written agreement alone would not necessarily defeat the breach of contract claim, since Queen was arguing that the parties verbally agreed to the deal in March 2008. That said, Queen still could not state a claim, said the court. The language of the purported agreement was that there would be a 50/25/25 split of the income after expenses, which included salaries. So salaries were part of expenses, but there was no method for calculating salaries and no figure was agreed upon. If, as the court surmised, they estimated the compensation (i.e., supplied the missing price term) according to market rate, the salary payable to Schultz under the contract would be equal to his compensation from MSNBC. But subtracting that as an expense left no profit for the parties to split, and Queen did not suggest any other metric for the court to use. Thus, Queen had told the court that the parties agreed to a 50/25/25 split, but not what they had agreed to split. That made compensation (a material term) too indefinite for the court to determine, and they upheld the dismissal of Queen’s contract claim against Schultz.
So Schultz was off the hook on the contract claim. But that wasn’t the end of the case. In the next installment, find out how 25% of nothing can be transformed into 50% of something through the magic of partnership law.