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Comment by larrys | Hacker News Reader

"This protocol causes a valid and enforceable contract to be formed."

Don't agree but if that were the case it would be a good reason not to use it. Details matter and this protocol doesn't have enough details (nor can it) that I would ever use it to form an legally binding agreement.

I already to a version of this with other types of investing (email back and forth essentially or sometimes a text) and the underlying assumption is that it is always subject to a formal contract which needs to be signed.

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The general rule is that intent of the parties to bind themselves forms a contract, even if the parties intend to draft a formal agreement later.

It's likely that other casual agreements that you don't think of as contracts are also contracts.

I'm not a lawyer, I'm a guy who took a business law class during undergrad, but my prof drilled it into my head that a contract consists of offer, acceptance, consideration, capacity, and legality. It can be on a napkin, it can be verbal, it can be in a text message, so long as those elements are present.

The difference between an offer and preliminary negotiations is the intent to contract, and language can be used to provide evidence on either side of this one. "Would you take $100k with a $5MM cap" is negotiating language, while "I'll give you $100k with a $5MM cap" is an offer.

Again, not a lawyer, but this "handshake protocol" appears to create valid contracts.

"It's likely that other casual agreements that you don't think of as contracts are also contracts."

Well I'm not a lawyer but I've been in business a long time so long that I'd rather not say and reveal my age.

I've done plenty of deals over the years and have dealt with plenty of lawyers and situations. While what your prof has drilled into you is true in the real world it may or may not be applicable depending on the situation and the specifics.

The fact that it's a "contract" is meaningless to me. The only thing that matters is the issue and the cost of enforcement combined with whether there is a leg to stand on and how motivated the other party is and who they are.

You could have a deal with a very wealthy person (or company) with an iron clad contract and they might not pursue enforcement simply because they don't want to spend their time over the issue. Or, they may be vindictive and decide to spend time and money to make a point. Or everything in between.

I've been involved in situations that have no legal merit whatsoever but someone was able to tie up a deal for 2 years over something written on a napkin agreeing to sell something that was only signed by one party of the business entity. It wasn't even valid for that reason alone but the aggrieved party was able to still file a lawsuit and hold up a deal and extract a settlement. Prior to the lawsuit being filed other lawyers scoffed and laughed at the idea that anything could happen. But it did.

Your professor probably also mentioned that there must be intent to make a binding agreement. If these agreements are regularly made in this situation merely as an offer to negotiate an actual contract at a later time, then the parties do not intend to be bound and they are not contracts. I believe that to be the case.

From Anderson's Business Law:

> Because a contract is based on the consent of the parties and is a legally binding agreement, it follows that the parties must have an intent to enter into an agreement that is binding. Sometimes the parties are in agreement, but their agreement does not produce a contract. Sometimes there is merely a preliminary agreement, but the parties never actually make a contract, or there is merely an agreement as to future plans or intentions without any contractual obligation to carry out those plans or intentions.

> In some cases, the fact that important terms are missing indicates that the parties are merely negotiating and that a contract has not been made. When a letter leaves many significant details to be worked out later, the letter or printed matter is merely an invitation to negotiate. It is not an offer that may be accepted and a contract thereby formed.

Yes, I remember that intent to contract was one of the requirements of an offer, and I remember that intent to contract is indicated by language. To quote my notes:

The second element of a valid offer requires the party who offers the proposal to intend to contract. Phrases such as “Are you interested” or “Would you give me” are words of preliminary negotiations.

Terms such as “I bid,” “I will give you,” or “My lowest price is,” show a present intention to contract and constitute valid offers.

That said, I'll take this opportunity to reiterate that I'm not a lawyer, I'm not accepted by the bar in any state, and for all I know the standards on this matter may vary by jurisdiction.

I'd simply err on the side of asking my lawyer before I started using this protocol with entrepreneurs or investors that I didn't know very well.

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The difference, according to the lawyers who served as my professors, is that one is considered by the courts to show intent to contract, and that the other is considered by the courts to be negotiation.

That said, I'm just repeating what a lawyer taught me about how courts determine intent to contract. I'm not a judge or a lawyer. I'm an entrepreneur who took some business classes.

edit: I just sent an old professor an email with the question, and a prompt to try to help him remember who I am. If he responds, I'll share the response no matter what it says.

At the very least it makes people accountable and open to shaming if they don't follow through. And in a small community word would spread about who breaks their deals.

Also I think PG should make this into a small mobile app. Every VC is going to add some wiggle text to his boiler plate.

"makes people accountable and open to shaming if they don't follow through"

And what exactly might be the method of shaming? A blog post? A central repository of shame? It's not like there is going to be some ebay type feedback system on investors that will take into account investors failing to live up to their promises. New entrepreneurs are hatched everyday. The "reputation" that an investor earns will have to be etched pretty clearly for them to find that info and believe it's ubiquity.

Reputation among what group is the question. I'm guessing if someone backs out on such a deal Y Combinator will remember, pass it on, fail to invite to Demo Day. This protocol works to YC's benefit even if the information never spreads beyond employees, participants and alumni. Any spillover is a bonus.

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