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Oral Contracts: An Abyss for Deep Pockets

by rjmintz on December 1, 2017

A contract is formed any time two people make an agreement to do, or not to do something. Certain types of contracts, involving commercial transactions, must be in writing in order to be valid. But most contracts do not have to be written.

A promise that you make is considered to be a contract if the other party relies on your promise. Recently, we have seen girlfriends and boyfriends claim that they were promised certain things by their former mates. These alleged promises called for lifetime care and support or a specific dollar amount to be paid at the end of the relationship. Since, by its nature, an oral agreement has no visible trail, these cases come down to one person’s word against the other.

One interesting case involved the ownership of a California lottery ticket. George and Sarah lived together but weren’t married. He was eighty-five years old, and she took care of him. They kept some spare change and a few dollars in a coffee can in the kitchen. Sarah would take out a dollar every few days to buy a lottery ticket. Over the years, there were a few winning tickets worth $20 or $100, and she would put those winnings back into the coffee can to finance future tickets.

One day they hit the grand prize of $12 million—twenty annual payments of $600,000, less taxes. Soon after the celebration was over, human nature being what it is, George claimed that the money in the coffee can was really his money and he was the sole owner of the ticket. Sarah, shocked and hurt, claimed they had always treated the coffee can money as joint property and that she was justifiably entitled to half of the winnings. Both sides hired lawyers, and George refused to settle the case.

The case went to trial in San Diego, and the jury found for George. They believed his story that the money to buy the ticket belonged to him and that there was no legal agreement between them to share the winnings. George got to keep it all.

We certainly do not know who was telling the truth, and that’s exactly the point. Nobody ever knows for sure who is telling the truth in these situations. That’s why anyone with whom you are involved, in any kind of business or personal relationship, can claim that you broke a promise and that they are entitled to some amount of compensation.

An employee can claim that you promised him a job for life. Let’s say that you own a medical practice and you decide that the work of Dr. Jones, a physician who works for you, is no longer satisfactory. If you fire Jones, there is an excellent chance that he will sue you. In the lawsuit, he will claim that he is entitled to a percentage of ownership in your practice based upon an oral agreement which you made. That is all he needs to do. He doesn’t need any other evidence. He simply claims that you made certain promises about sharing the practice with him. Now you have to defend yourself and risk losing a portion of your business. It is now your word against his, and the jury can decide who they believe. These types of claims are made every day in our courts, and many employers end up making huge settlements with the fired employee in order to avoid the expense of litigation and the risk of loss.

A Japanese chip manufacturer in the Silicon Valley closed down its plant and laid off all the workers. The company was sued by all 868 workers for more than $1 billion on the grounds that they were promised lifetime employment. The case was ultimately settled for more than $20 million after millions of dollars in legal fees and thousands of hours of wasted time and energy.

Claims of a contract based upon an oral agreement are numerous and difficult to defend against. I have three cases in my office right now where the plaintiff is claiming a legal interest in the client’s business based on alleged promises to share ownership. These claims are powerful and effective because they are easy to fabricate, expensive to defend, and may involve millions of dollars.

Down load pdf of the entire bookComing next:  Negligence

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