Hey everyone, pardon the day delay of Draw the Law, but today’s post will continue the discussion of various forms and documents that businesses will use and see on a regular basis. For today’s post, I will address a question I frequently get from small business owners who are either trying to set-up their invoicing system or they receive stuff from a vendor and do not want to pay for it.
The question is simple: is an invoice a contract? Do I have to pay it?
For once, in the law, the answer is simple. No, an invoice (by itself) is not a contract.
Why is it Not a Contract?
First, let’s talk about what it is and what this document usually has on it. It is a bill, with itemized amounts of the goods sold by the invoicing party. If you remember earlier posts, remember that a contract is not a piece of paper. At its most basic level, it is a promise for a promise. So when the vendor sends just the invoice and the other side has not accepted, there is no contract.
An invoice alone, even after goods are sent, is just evidence that a quantity was sent and that there is a price attached to that, BUT without acceptance on the part of the other side no contract has formed.
In an old Supreme Court case, the court stated the following in their opinion:
An invoice is not a bill of sale, nor is it evidence of a sale. It is a mere detailed statement of the nature, quantity, and cost or price of the things invoiced . . . standing alone, it is never regarded as evidence of title.
Dows v. National Exchange Bank of Milwaukee, 91 U.S. 618 (1875).
Is there a Way to Make an Invoice a Contract?
Yes, have the other side sign off on it. Remember that so long as the recipient has acknowledged the terms and there is some evidence (like they signed) of accepting those terms there will be no contract. In addition, if you received goods, held onto them, and started reselling them, there is an indication that you accepted the goods. If you are rejecting the invoice, you should also reject the underlying goods you received (whether that be shipping the whole thing back, writing a letter, or some other overt act).
For an invoice to become a contract, there needs some sort of overt action to show acceptance, such as holding onto the goods and selling them or even more simple the signing of the invoice. Remember from an older post, there can be no contract without offer, acceptance, and consideration.
Invoices and Emails
Nowadays, there is a habit to just send invoices frequently through email. This brings up an article I posted on my Facebook account last week, which is that a series of emails can be a contract. You can read more about it by clicking here. Basically, consider the back and forth exchange of your emails as the terms of the agreement, as soon as the sides “accept” there is a contract. So it is very easy to see that you could agree to something that you didn’t intend to by “accepting” and hitting that “reply” button if you aren’t careful.
So sending emails back and forth actually can create a contract (a promise for a promise). In this example, the contract is for 500 widgets at $750 to be delivered at 8:00 Thursday. However, you as the reader, can tell that this seems very vague, which is why often businesses turn to lawyers to draft sophisticated documents to make clear what the terms are of the deal. The last thing you want is for a judge to make up the contract terms for you when you dispute the other side in court.
So double-check the invoices you send and receive, alone they are not a contract, but any evidence of acceptance will form a contract.
[author] [author_image timthumb=’on’]http://www.alohastartups.com/wp-content/uploads/2011/09/RyanKHew.png[/author_image] [author_info]I am a practicing attorney in Honolulu, HI helping small businesses with their transactional and compliance needs. Contact Me Today: Web| 808.944.8400 @RKHewEsq Ryan K. Hew, Attorney At Law[/author_info] [/author]
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.