When Contracts May Not Be Contracts: Missing Terms

The North Carolina Court of Appeals opinion filed earlier this month (October 2013) in Charlotte Motor Speedway v County of Cabarrus was presented by the local media as the most recent scene in the ongoing pathetic and droll soap opera that is the feud between Bruton Smith and CMS on the one hand and Cabarrus County and the City of Concord on the other.  But more importantly for business owners, it also serves as a restatement of the long-standing North Carolina court policy of refusing to enforce a contract (or an alleged contract) where the essential terms are not sufficiently clear. 

The ‘agreement’ centered on a letter from Cabarrus County and the City of Concord that proposed various infrastructure improvements that would be made if Smith would keep CMS at its present location and bring in additional attractions.  Smith kept the Speedway in place and built a major Dragway.  But he later formed the opinion that the ‘promises’ in the letter weren’t being accomplished fast enough and brought suit to enforce the “contract” between CMS and the County.  The trial court dismissed the suit, and Smith appealed to the Court of Appeals.

One of the issues, and the one we are considering here, was whether the letter from the County constituted a contract.  In response to this question, the Court of Appeals ruled the letter did not represent a contract, because the letter left certain “material terms” unspecified.  The Court said that under “longstanding North Carolina law” a valid contract requires (among other things) that the “essential terms” be included.  According to the Court, a contract that leaves “material portions” open is “void for indefiniteness.”

Why do you care?  Well, contracts are everywhere.  And there are many, many valid contracts floating around out there that are missing various ‘terms’.  When that becomes a problem, if the parties can’t work it out, eventually one will sue and a court will supply the missing term based upon statute, case law, course of dealing of the parties, industry custom, etc.  Reason one why proper drafting is important: you might not like the answer that will be supplied.  We leave that for another day.

But here is reason two:  At least in North Carolina, if the key (or “essential”) terms of the contract are missing, there simply is no contract.  And that was the core of this case—the issue was not that that contract was not in some specific, formal, finalized written form.  (Contracts may be valid without being reduced to writing at all.)  The issue was that “essential” terms detailing the agreement were missing.  The inclusion of the “essential” terms for the contract is crucial—fortunately, it is an easier standard to satisfy.  Contrary to what some seem to think, it can often be done without creating a 50 page document.  But it must be done.  Invariably this requires intentionality.  And that can be a practical advantage of having an attorney draft the contract: if the attorney is doing his or her job it forces the client to articulate the agreement, and in so doing the expectations come out.  Getting them in writing is then fairly simple.

Doing it yourself, it is all-too-easy for unstated assumptions to remain hidden behind the sofa.