Contracts are an essential part of business transactions especially in provision of services and goods needed to sustain business operations. There are four major types of contracts and these are written, oral, express and implied contracts. However, this paper will analyze oral contracts in business transactions. According to Barron (2006), oral contracts are contracts which are verbal in nature and they usually involve parties which regularly engage in business or those which engage in business involving a mutual trust relationship. Oral contracts, just as other forms of contracts, have certain features such as mutual consent, consideration and damages for breach of contract.
This paper aims at analyzing a dispute involving an oral contract and provides an assessment on the validity of the contract, party which was wronged as well as how such a dispute can be avoided in future. The oral contract involves Mr. Smith and his boss, Mr. Drake, and the disagreement occurs due to breach of contract to pay Mr. Smith additional commission arising from the sale of merchandise. However, arbitration by my dad solves the disagreement and he rules in favor of Mr. Smith. In addition to paying the commission to Mr. Smith, Mr. Drake pays him $500 in damages for breach of contract.
The breach of oral contract dispute involved Mr. Smith, my neighbor and the firm he works for, Brook House Merchandisers. Mr. Smith was a salesman and he sold a variety of goods including electronics and computer accessories which Brook House Merchandisers dealt in. He is paid a commission of 7% on the total value of goods sold. Due to his good performance, his boss, Mr. Drake offered him an increment of 3% if he sold goods whose value exceeded $20,000 in a month. This meant that he would receive a total commission of 10% if he sold goods which exceeded this value. The agreement was oral and it was made in the presence of Mr. Smith’s supervisor, Mr. Mark.
The following month, Mr. Smith sold goods worth $30,000 and expected to receive a commission totaling $3,000. However, his boss, Mr. Drake reverted back on the agreement and only paid him 7% in commission. He cited the adverse effects of the global financial crisis and explained that since the contract was not written, he would pay Mr. Smith the extra commission once the global crisis subsides. Since my dad was friends with both Mr. Smith and Mr. Drake, both agreed to choose him as an arbitrator to solve their disagreement over the oral contract.
In making the determination on the case, my dad relied on various components of a contract. He also relied on the validity of an oral contract as a legally acceptable agreement. These elements are analyzed below;
According to Sharrock (2007), this is a form of compensation between parties in a contract. It is an action which benefits one party and causes detriment to another as a result of provision of goods, services or acts. In the agreement, Mr. Smith would receive an increment in commission if he sold more merchandise. In this case, Mr. Smith would gain from the commission earned while Mr. Drake would lose from the commission paid to Mr. Smith, which satisfies the definition of consideration.
According to the Law school Help Website (2009), a valid contract should have been entered into by parties freely. It should also be communicated to all concerned parties and should be through mutual consent. The deeds and actions of the parties involved in the agreement determine whether it was mutually consensual. In this case, Mr. Drake communicated to Mr. Smith on the increment of the commission in the presence of Mark, Mr. Smith’s supervisor. Since there was no disagreement after making the offer, there was mutual acceptance between the parties.
Offer and acceptance
In a contract, one party must make an offer and the other should accept it, for it to be legally enforceable. Mr. Drake made an offer of increasing commission received for sales over $20,000 and Mr. Smith accepted it. Since Mr. Drake and Smith did not oppose the agreement, this proved that they accepted it. Therefore my dad was of the opinion that the ‘offer and acceptance’ element was present in the agreement.
Validity of the contract
Since the contract had all features required for a contract to be considered valid, my dad was of the opinion that it was a valid contract. It was even made in the presence of Mr. Mark, and this showed that there was a witness who could testify in court if need be. However, since both parties had pursued the arbitration option, they were bound by his decision. He ruled that the contract was valid and that in addition to paying Mr. Smith the additional commission, Mr. Drake should also pay him $500 in damages. Mr. Drake accepted the decision, paid Mr. Smith the amount and the disagreement was resolved.
Many people are of the opinion that oral contracts are not as valid as written contracts. This is not the case since both are essentially just different types of contracts. In the case which has been analyzed above, Mr. Drake had to pay Mr. Smith the additional commission arising from the oral contract. In addition to this, he paid him $500 in damages due to breach of contract. It is important to note that oral contracts are difficult to prove especially in instances where there are no witnesses. In order to prevent a situation like this arising in future, businesses should ensure that all contracts are in written form and that they are worded in language which all parties can easily understand. This will ensure that contracts play a more crucial role in business transactions in future.
Barron, M. (2006). Fundamentals of business law. New York: McGraw Hill
Sharrock, R. (2007). Business Transactions Law. New York: Juta
Law school Help Website. (2009). Law of contract. Retrived on September 14, 2009 from .
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