Legal Question in Business Law in California

Re: Contract

Your situation raises the following preliminary issues and questions:

(1) Did the two companies, intentionally or unintentionally, create a partnership or joint venture? Partnership agreements are one of several exceptions to the statute of frauds. They don't have to be in writing; in fact, an express agreement isn't necessary, oral or written. A partnership can be created by conduct. If it walks and talks like a partnership, it probably is.

(2) Will it even matter whether the contract is treated as written or oral? In quite a few situations, oral contracts are perfectly good, sound and enforceable. The main difficulty is in proving their existence and terms.

(3) Is there some writing that would allow a court to treat the initially oral agreement as a written contract? Usually, it takes some memo of the main terms of the contract bearing the signature (which can be as little as a couple of initials) of the party to be sued.

(4) Even if there is no partnership and no enforceable contract, your company may be able to recover from the other in court on a "quasi-contract" theory. The principle is that a party should not profit unfairly at the expense of another just because of a problem in the documentation of the relationship that results in an unenforceable, void or nonexistent contract. The principle is also called "unjust enrichment" or "quantum meruit."

You may have a hard time recovering for an expenditure if foolishly made on an expensive facility without getting a tight contract, but if your investment was reasonable in the circumstances, you may have a strong case for damages under a partnership, contract or quantum meruit theory.

Re: Contract

Whether you have a contract depends upon what was said by each side and upon the actions each took as a result. It is also possible, as Mr. Whipple notes, that the two companies formed a partnership.

Even if you have a valid agreement, you may be unable to prove its validity (or even its existence) in court.

This is why such agreements should always be made in writing. If the agreement was so significant that you invested in a new building, you should also have invested in a lawyer to draft and negotiate a proper contact for you. Your legal fees to enforce the oral agreement will likely be many times higher than what you would have had to pay for a contract, and you may end up losing your case for lack of a written agreement.

Good luck.

Re: Contract

There are ways to prove oral contacts, but according to a body of law called the "statute of frauds", as well as other provisions, certain types of agreements must be in writing to be enforceable. There are a lot of factors that proving the agreement and its terms depends on. Of course, you may have options. I would need to know the details, but it is sometimes possible to make oral contracts enforceable if you act properly, soon enough, and have the right attorney. Please feel free to contact my office tomorrow. Do not delay, or your time to act may run out.

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