BFV Perspectives, Georgia Business Disputes, | Apr 02, 2013

Georgia Courts Paying More Than Lip Service to Oral Agreements

When people think of contracts, they often think of formal written documents and fine print. But many business transactions, large and small, are discussed and agreed upon entirely orally. Rather than affixing signatures to a formal document, a hand shake is all that memorializes the deal. When each party performs as the other expects, people appreciate the lack of formality and enjoy the trust that they share in one another.

Business men and women often take pride in their word being their bond – “I shook the man’s hand. We have a deal!” Yet, when things don’t go according to plan, parties are often left wondering whether their oral agreements are enforceable in court. After all, Samuel Goldwin famously stated that “a verbal contract isn’t worth the paper it’s written on.”

Notwithstanding this sentiment, many oral agreements can be enforced. So what is it that makes some oral contracts enforceable while others are not? Three recent appellate decisions highlight some of the factors considered by Georgia courts in determining the enforceability of alleged oral agreements.

In Lovell v. Georgia Trust Bank, Virgil Lovell took a $1 million dollar loan from Georgia Trust Bank. In return, Lovell gave the bank a promissory note and a security interest in certain real property. When the one-year term of the note expired, Lovell paid the interest due and renewed the note for another year. The same thing happened two more times when Lovell tried to renew the note a third time, however, the pledged land had depreciated substantially. The bank wanted additional security. Lovell and the vice president of the bank discussed various security and repayment options. Lovell expressed concern about making the payments. The bank’s vice president assured Lovell that the bank would take reasonable steps to work with him in the event that Lovell was unable to pay the note according to its terms. Lovell signed the new note and refinanced the loan yet again.

Lovell later fell into default on the note and the bank brought suit. In response, Lovell argued that it was the bank and not him had breached the contract in that the bank failed to “work with him” in resolving the default prior to filing suit. The trial court rejected Lovell’s argument and granted summary judgment to the bank. The Court of Appeals affirmed, finding that an alleged oral agreement cannot modify or relieve obligations imposed by an unambiguous written agreement. Takeaway: If an agreement is in writing, an oral attempt to modify the writing is unlikely to be enforced.

In Wright v. Cofield, Carl Wright and Russell Neuman had an idea for a business, but lacked the funding to pursue it.  Eventually, Wright and Neuman met Charles Cofield, who was willing to invest in their idea. In exchange for his financial investment, Cofield insisted that he own 100% of the new venture and that Wright and Neuman be employees of the new company. Cofield assured both Wright and Neuman that, if he sold the company, each would receive 15% of the net sale proceeds. Wright and Neuman became employees and worked for the company for several years. Several company documents and other written communications confirmed the 15% upon sale understanding. Ultimately, Cofield sold the company. Though Neuman received 15% of the sale proceeds, Wright did not.

Wright brought suit against Cofield alleging breach of an oral agreement. The trial court dismissed the case, finding Cofield’s alleged promise too vague to be enforced. The Court of Appeals reversed, concluding that 15% of net sale proceeds was sufficiently definite to be calculable and, therefore, enforceable. The case was reinstated and Wright was permitted to try his breach of oral agreement claim before a jury. Takeaway:  if the terms of an oral contract are sufficiently definite and concrete so as to be reliably determined, those contracts will generally be enforced.

In Turner Broadcasting v. McDavid, David McDavid negotiated with Turner toward the acquisition of the Atlanta Hawks and other assets. After months of negotiations and numerous detailed term sheets exchanged between their lawyers, Turner’s president announced to McDavid in a teleconference that “we have a deal.” A few days later, as terms of the McDavid deal were being memorialized in formal legal documents, Turner reached an agreement to sell the same assets to Atlanta Spirit, LLC.

McDavid brought suit, alleging a breach of an oral agreement. McDavid sought damages amounting to the difference between his agreed-upon sale price and the actual value of the asset. McDavid prevailed at trial and was awarded $281,000,000.

On appeal, Turner argued that courts should not enforce oral agreements in complex, high-dollar business deals because formal written contracts are necessary to describe the complex nature of such transactions. The Georgia Court of Appeals rejected Turner’s argument, finding no reason to treat large, complex deals any differently than small, simple ones. Further, the Court of Appeals held that an inked signature is not necessary to demonstrate acceptance of the terms of a written contract; an oral acceptance may be sufficient. Takeaways: oral agreements can be enforced in matters both large and small. Written contracts need not necessarily be signed to manifest acceptance and agreement, but may instead be accepted orally.

Given the recent penchant of Georgia courts for enforcing oral agreements, mom’s advice about choosing your words carefully rings truer than ever.

BFV Perspectives, Georgia Business Disputes, | Apr 02, 2013
William J. Piercy
William J. Piercy

Healthy business relationships are an essential component of business success.  When disputes cause business relationships to sour, declining productivity and revenues are sure to follow.  Bill works with business owners to bring successful and efficient resolution to a wide variety.