There are plenty of times in a businessperson’s life that an oral agreement is made. The question is whether or not it is enforceable in court.
The first important factor to be considered is whether or not the oral contract is replacing the existence of a written contract, which is generally the case. The next question is “why”. Then we must state that there is no substitute for legal counsel. We cannot just deduce any particular reason why there is a lack of written agreement because there may be many. In this day of a litigious society, we could not recommend anyone proceed into business without attorney counsel and written agreements. However, it does happen and even on some high business levels.
Have you ever seen the show Flip This House? Richard Davis, Plaintiff in the case Trademark Properties Inc. v. A&E Television thinks he has a contract with A&E for profits on the show even though there is no paperwork to state such. Mr. Davis claims he made an agreement with A&E and agreed to split revenues (orally without written contract) with the network for the first year of the series. The District Court agreed and awarded the plaintiff $4 million, which is the amount of revenue that was accrued during the first year of the series.
The Defendant (A&E) appealed stating that there was no way that the evidence produced could convince a jury that there was an oral contract. However, the Appellate Court in the Fourth Circuit in a 2-1 decision upheld the jury decision.
Does this mean that your oral agreement is good to go? NO, but read on!
The Appellate Court found that two things had to be proven for Davis to prevail even though Davis could only claim the agreement was made in a one-on-one conversation with no other witnesses. The court said that 1) Davis had to have a reasonable belief that the agreement was asserted during the conversation and that the executive understood and 2) that Davis’s belief was reasonable.
The court found both to be reasonable and true.
However, it would seem that the network added to their damages.
There are some particulars to the case, which did not lend credibility to the network. The network never objected to the deal (as originally organized) and Davis split the cost of crew and cast, as well as other production costs. The court deduced that it was reasonable if the Plaintiff and Defendant spit the costs, they would split the profits.
The Appellate Court noted that the District Court was correct in excluding the testimony of the A&E Executives, who were going to say that “no producer” gets a network split in reality TV. They would have to have been certified as “expert witnesses.” A&E was banking on “generalizations” in a particular situation, which isn’t a great idea in court.
What you can take from this case is this.
– Get a written agreement or contract.
– Get legal counsel involved before you agree to finality in any transaction.
– No company or network is too big to be exempt from making mistakes.
– Make your deals reasonable!
Law is based on reasonableness and therefore you need to adjust your attitude as an executive, a manager or an employee to conform to what is reasonable for the situation. We have all made verbal agreements, but we need to evaluate the situation before we make conclusions. Don’t be in too much of a rush for transactions; that will cause “sloppy business.”
There is one more interpretation from this case. This is the dissenting opinion of Appellate Judge Duncan.
Judge Duncan wrote that while Davis deserved to be compensated, the record did not support a finding that an oral contract had been reached. Specifically, Judge Duncan said that a reasonable person would not interpret “Okay, okay, I get it” as a manifestation of agreement.
With an oral agreement, you’ll never k now if it’s all said and done!