Question

Discussion - Statute of Frauds: I promise to pay you a big bonus if I ever have a big "payday."

As a review, although it would be helpful for evidentiary reasons, most contracts do not need to be in writing in order to be valid and enforceable. However, certain contracts fall within the statute of frauds and therefore need to be in writing in order to be legally enforceable. Each state creates its own laws regarding written contracts. Most states require the following contracts to be in writing:

Suretyship: A promise to pay debt if debtor fails to pay

Marriage: Made on consideration of marriage (a.k.a. prenuptial agreements)

Land: Related to an interest in land

Time: Impossible to perform in 1 year

Sale of Goods: Uniform Commercial Code requires sale of goods totaling over $500 to be in writing.

Florida Statute. 725.01 Promise to pay another’s debt, etc.—No action shall be brought whereby to charge any executor or administrator upon any special promise to answer or pay any debt or damages out of her or his own estate, or whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person or to charge any person upon any agreement made upon consideration of marriage, or upon any contract for the sale of lands, tenements or hereditaments, or of any uncertain interest in or concerning them, or for any lease thereof for a period longer than 1 year, or upon any agreement that is not to be performed within the space of 1 year from the making thereof, or whereby to charge any health care provider upon any guarantee, warranty, or assurance as to the results of any medical, surgical, or diagnostic procedure performed by any physician licensed under chapter 458, osteopathic physician licensed under chapter 459, chiropractic physician licensed under chapter 460, pediatric physician licensed under chapter 461, or dentist licensed under chapter 466, unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.

Consider the following scenario:

Smith, an hourly-waged employee, assisted Attorney Jones in marketing his law practice, researching potential class action lawsuits, and in performing work as a contract employee for relatively brief periods of time, for which Smith was paid. Over the years that Smith worked for Jones, Jones promised Smith a bonus if he ever had a big “payday” with one of his class actions. Jones made bonus payments to all of his employees after a huge settlement was reached in one of the class actions. Joness gave Smith a $1,300 bonus. Smith was disappointed with the amount of her bonus.

One evening, Smith and her husband invited Jones to their home and secretly tape-recorded their conversation.  Smith and her husband suggested to Jones that he pay her a substantial bonus due to her encouragement of Jones to pursue class actions. After a lengthy discussion, the Smiths suggested that Jones pay Smith a $1,070,000 bonus, and Jones orally agreed. Jones discussed how and when the payments would be made.

Jones refused to make a lump sump payment. Instead, he orally agreed to make the $1,070,000 payment over the course of 107 months in the amount of $10,000 per month. Jones also agreed to pay for an attorney to draft a written agreement to memorialize their understanding, and he spoke to the Smiths' attorney on the phone and confirmed he had agreed to pay a bonus to Smith. However, Jones later refused to sign any written agreement.

After Jones paid $170,000 to Smith, he quit making further payments and terminated her employment with him. Smith sued the Jones to collect the remaining $830,000.

As attorney for the employer, Attorney Jones, what possible defenses would you raise in defense of the lawsuit that the employee, Smith, filed against him? As a judge in the case, how would you decide this case and why? Please provide legal reasoning for your answer.

Answer 1

As per the Act of 1872, a valid oral agreement is of value and can be enforced in the court of law. However, it is always difficult to prove the existence or the exact terms of the agreement, in case of dispute.

Furthermore, Section 48 of the Registration Act, 1908, states that all non-testamentary documents duly registered under this Act, and relating to any property, whether movable or immovable, shall take effect against any order, agreement or declaration relating to such property, unless where the agreement or declaration has been accompanied or followed by delivery of possession.

Also, Section 92 of the Indian Evidence Act states that when the terms of any such contract, grant or other disposition of property, or any matter required by law to be reduced to the form of a document, have been proved according to the last section, no evidence of any oral agreement or statement shall be admitted, as between the parties to any such instrument or their representatives in interest, for the purpose of contradicting, varying, adding to, or subtracting from, its terms. However, its proviso (2) makes an exception to that if there is any separate oral agreement as to any matter where the document is silent and the terms are inconsistent, then the oral agreement may be proved valid. And proviso (3) further makes an exception that if there is any separate oral agreement which constitutes a condition precedent to the attaching of any obligation under any such contract, then also oral agreement may be proved.

As an Attorney of Jones oral agreement is valid as per the Indian Evidence Act. Thus he will be liable to pay the full amount as demanded by Smith.

As a Judge I will confirm the agreement as valid & thus agreeing it orally is also valid & thus the Jonas will be liable to pay $ 830000.