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Parties Must Have a Meeting of the Minds for a Valid Contract

July 22, 2022
contract

One of the basic tenets of contract law is that the parties must come to a “meeting of the minds” in order to have a valid and enforceable contract. Valid contracts require an offer, acceptance and consideration. Further, there must be a meeting of the minds of the parties on the contract’s essential terms, and those terms must be reasonably certain and clear. Parties may agree they had a contract with each other but disagree on how certain terms should be interpreted. However, without the essential elements of a contract, then there simply is no contract. A recent Eighth District Court of Appeals for Ohio case shows a descriptive example of how courts analyze this seemingly basic aspect of contract law.

Tecco v. Iconic Labs, LLC

Tecco v. Iconic Labs, LLC involved a dispute in which Donald Tecco (Tecco) alleged there was a partnership agreement between him and another individual, Travis Bennett (Bennet). Tecco sued Bennet for breach of contract, claiming he had an ownership interest in a company Bennett owned. In his complaint, Tecco alleged Bennett approached him to start a new company, Iconic Labs, LLC (Iconic), where they would be 50-50 owners in the company and share all profits and compensation equally. They started to work together for a little over a year, and Tecco alleged that throughout their business relationship, Bennet gave him assurances they would sign a formal legal document to acknowledge their partnership agreement, but that never happened. Instead, Tecco alleged that after Bennett secured a large contract for Iconic, Bennett took the position that Tecco was just an employee, not an owner in Iconic. Tecco then filed suit claiming he owned a 50% interest in the Iconic Labs, LLC.

Bennett denied that there ever was any contract between him and Tecco, and filed a motion for summary judgment against the claims. In his deposition, Bennett provided multiple facts the court relied on to rule in his favor. He said that he had discussions with Tecco about a possible minority interest in his company, but nothing finite ever resulted. Tecco, in his own deposition, said that he had proposed various splits between him and Bennett for the company, but he admitted they had not agreed on exactly how to split up the ownership between them.

Additional facts helped Bennett’s defense. Bennett, not Tecco, incorporated the company. Tecco had not made the same capital contributions as Bennett. Tecco did not sign tax returns on behalf of the company. Tecco never shared in the company’s losses. Further, Tecco was paid as a W2 employee. While none of these factors are themselves definitive, they all weighed in favor of the defendant here.

Court Finds There Was Not a Meeting of the Minds

The court ruled in favor of Bennet on summary judgment, finding there was not a meeting of the minds between Tecco and Bennett on essential terms of any contract between them. The parties did not have a meeting of the minds on any essential terms because even the plaintiff could not state what exactly his alleged ownership interest was in the company.

One of the ways Tecco could have avoided his predicament would have been to obtain a signed agreement in writing early on in his business relationship with Bennett. This would have forced the parties to write definite terms that they both bargained for and agreed to. All the defendant had to do was say he never agreed to any of the alleged terms Tecco claimed, and then show a few facts, such as that Tecco was not treated like an owner, to have the court grant summary judgment in his favor. This case shows the classic pitfalls of relying on oral contracts. It also shows that well thought out partnership and operating agreements are essential to starting any business – big or small.

For further questions or clarifications on partnership agreements and related disputes, please contact Jeffrey R. Vaisa at (JRV@kjk.com; 216.736.7287) or another member of KJK’s Corporate & Securities practice group.

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