Business dealings and negotiations don’t always happen in formal settings, and many terms of an agreement are often hashed out via casual conversations. At Egbert & Barnes, P. C., we are often asked about these casual negotiations, especially when things go south before a contract is drafted and signed by all involved parties.
When it comes to expressions demonstrating an intent to pay or enter an agreement, the law is quite simple. These types of gestures do not constitute as legally binding contracts. This is something that has been increasingly tested in recent years, especially in regards to lenders who are trying to secure a guarantee claim.
When a loan defaults, lenders are often willing to work with borrowers, especially when they have good reason to believe that the borrower will follow through with their promise. If borrowers continue shirking their loan obligations, lenders have been known to sue borrowers, where they rely on things such as expressions of intent to pay in order to secure a judgement against borrowers.
Binding Obligations Require Formal Contracts
These types of lawsuits are often settled in favor of the borrower. This establishes a clear legal precedent: intention to pay or enter an agreement is not a legally-binding contract. In order for the terms of an arrangement to be legally binding, all involved parties need to understand the terms as well as fully spell out what they bring to the arrangement via a formal contract.
When it comes to your business dealings in PA, don’t rely on just word of mouth or intention to pay/enter an agreement. To avoid future complications, always take time to clearly define contract terms and draft an effective, legally-enforceable contract that ensures all parties are responsible for holding their end of an agreement.
If you’re looking for a more in-depth discussion, know that the skilled business law attorneys at Egbert & Barnes, P. C. are here to help. You can call us at 215-886-6600 to schedule a free initial consultation with one of our experienced legal professionals.