CFAES Give Today
Farm Office

Ohio State University Extension

CFAES

The Contract Law Harvest

By:Jeffrey K. Lewis, Esq., Program Coordinator, OSU Income Tax Schools & ANR Extension Thursday, February 29th, 2024
Template Contract

In this rendition of the Ag Law Harvest, we bring you some contracts! Over the course of February, there were three Ohio cases that demonstrate the importance of having a written contract, the ability to form a contract through your actions, and the need to make sure specific terms within a contract can be enforceable. 

Handshake Agreements Can Be a Double-Edged Sword.
In this case we are introduced to two brothers (the “Plaintiffs”), who were equal partners in a farming business that included buying and selling livestock. As part of their business, Plaintiffs sold cattle to Defendants between 2009 and 2017. The parties did not have a formal contract in place and conducted business on a “handshake agreement.” 

The Plaintiffs claim that the Defendants acted as intermediaries, purchasing heifers from them, and reselling them to other dairy farmers or at market. According to Plaintiffs, it was customary for the Defendants to pay for the cattle immediately upon delivery or within 30 days. However, around 2016, Defendants allegedly wrote checks for seven transactions but asked Plaintiffs not to cash them due to insufficient funds. Plaintiffs assert that Defendants never honored these checks, resulting in an outstanding amount of $128,950. Despite Plaintiffs' attempts to collect, Defendants denied owing any money, arguing that Plaintiffs were fully paid through later payments or third-party transactions. This disagreement led to the filing of Plaintiffs' lawsuit.

In February of last year, the trial court granted Plaintiffs summary judgment and awarded them $120,150. Defendants appealed the trial court’s decision arguing that summary judgment was inappropriate because whether or not Defendants owed Plaintiffs any money was in dispute. The appellate court agreed. 

In its opinion, the appellate court stated that it was clear that “the trial court weighed the credibility of the parties. . .” The appellate court also made it clear that “[s]ince resolution of the factual dispute will depend, at least in part, upon the credibility of the parties or their witnesses, summary judgment in such a case is inappropriate.” Furthermore, the court noted that because there was no written contract between the parties, the only evidence to demonstrate the particulars and common practices of the handshake agreement comes from the personal knowledge of the Plaintiffs and Defendants. Therefore, because both parties disagree as to whether Defendants owe any money to Plaintiffs, the trial court should not have ruled in favor of Plaintiffs on summary judgment. Consequently, the case is remanded to the trial court for further proceedings, potentially including a trial.

This case shows us two things, the importance of having a written contract and the importance of recordkeeping. The parties to this lawsuit must now argue that their recollection of events is the true and accurate recollection. Both parties will likely be judged by a group of jurors and one party is bound to be out a large sum of money. A written contract could have avoided much of the dispute by including language about the process for payment, record keeping requirements, and other terms and conditions that would have governed the relationship of the parties. Now, because there is no written contract, this case becomes a case of “he said-he said.”  

Implied Contracts Can Be Formed Based on a Tacit Understanding.
The second case demonstrates that the surrounding facts and circumstances can create an implied contract even when no signed contract exists. In this case Plaintiff, a residential construction company, provided the Defendant-homeowners with two written quotes for roofing and other work at their home. The quotes included various services and specified a 30% upfront payment with the remainder due upon completion of the work. Although the Defendants did not sign or date the quotes, they paid Plaintiff $6,815, which was stated to be a 30% prepayment for the total quoted amount of $22,717. 

After completing the roof, Plaintiff submitted a bill to the Defendants for the balance due on the roof. The Defendants took issue with the invoice for two reasons: (1) the price did not match the quotes, and (2) Defendants believed that payment would not be due until all items on both quotes were completed. Ultimately, the parties parted ways and Defendants asked Plaintiff to not return to their home leaving the remainder of the work listed on the two quotes uncompleted. 

Plaintiff sued the Defendants alleging breach of contract, seeking payment for the finished roof. The matter proceeded to a bench trial where the trial court found that the two quotes and the 30% payment operated as an implied contract and not an express one. The trial court also held that Plaintiff did partially perform the agreement and should be paid for the roof installation. 

The Defendants appealed, arguing that Plaintiff could not recover in this case because Plaintiff only alleged a breach of an express contract and did not seek recovery for breach of an implied contract. The appellate court disagreed. The court noted that under Ohio law there are three types of contracts: (1) express contracts, (2) implied in fact contracts, and (3) implied in law contracts. 

The court went on further to explain when the three different kinds of contracts are created. An express contract is created when there is an offer and acceptance of written terms. An implied in fact contract requires a “meeting of the minds” and that “is shown by the surrounding circumstances which [make] it inferable that [a] contract exists as a matter of tacit understanding.” Lastly, with an implied in law contract “there is no meeting of the minds” but the law will create civil liability for a person in receipt of benefits which they are not justly entitled to retain.   

The appellate court held that the trial court correctly found there was no express contract between the parties, rather there was an implied in fact contract. The court reasoned that the two written quotes and the 30% prepayment created a tacit understanding amongst the parties. Furthermore, the court concluded that because an implied contract existed amongst the parties, Plaintiff is entitled to recover for the work they did do. Lastly, the trial court noted that Defendants should have been aware that Plaintiff’s breach of contract claim would not only apply to express contracts but also to implied contracts. 

Noncompetition Agreement Found to be Unenforceable. 
In our final case we are introduced to a salesman that was being sued by his former employer for breach of a non-competition agreement (the “NCA”) after going to work for a direct competitor. Plaintiff, Kross Acquisition Co., LLC (“Kross”), is a basement waterproofing contractor. Kross provides service in southwestern Ohio, southeastern Indiana, and northern and eastern Kentucky. Kross’s former employee Roger Kief left to work for Groundworks Ohio, LLC (“Groundworks”). Groundworks is engaged in substantially the same business as Kross and serves the entire state of Ohio as well as Kentucky, Indiana, and many other states. 

Kief began working for Kross in 2017 and signed the NCA. The NCA prohibits Kief from disclosing confidential information and from working anywhere in Ohio or Kentucky for any competing company for a period of two years after leaving Kross. In February of 2022, Groundworks offered Kief an identical position with a start date of March 2022. 

Kross filed lawsuit against Kief for failing to adhere to the NCA. The trial court found the NCA unenforceable and granted summary judgment in favor of Kief. Kross filed an appeal arguing that the trial court erred when it found the NCA unenforceable. The appellate court disagreed. The court noted that the following factors are used to analyze whether a noncompetition agreement can be enforceable: 

1. Time and space limitations: Whether the agreement specifies a reasonable duration and geographic scope for its restrictions.

2. Sole contact with the customer: Whether the employee is the primary or sole contact with the employer's customers.

3. Confidential information or trade secrets: Whether the employee has access to and possesses confidential information or trade secrets of the employer.

4. Limitation of unfair competition: Whether the covenant aims to prevent unfair competition or if it overly restricts ordinary competition.

5. Stifling of inherent skill and experience: Whether the agreement unreasonably stifles the employee's inherent skill and experience in the industry.

6. Disproportionate benefit to the employer: Whether the benefit gained by the employer from the agreement outweighs the detriment imposed on the employee.

7. Bar on sole means of support: Whether the agreement bars the employee's only means of earning a livelihood.

8. Development of restrained skills during employment: Whether the skills restricted by the agreement were actually developed during the employee's tenure with the employer.

9. Incidental nature of forbidden employment: Whether the forbidden employment is merely incidental to the employee's primary employment with the employer.

Based on the foregoing factors, the court found that the geographic and time limitations “exceeded what is necessary to protect Kross’s legitimate business interests.” Therefore, the appellate court found the NCA unenforceable.