Question

In: Operations Management

Frieda wants to borrow $10,000 from Petra, and so Petra writes an integrated contract that says...

Frieda wants to borrow $10,000 from Petra, and so Petra writes an integrated contract that says Frieda will repay the debt "within 90 days."

Before Frieda signs the contract, she says to Petra, "you mean business days, right? I don't think weekends and holidays should be included." Petra responds, "Sure, that seems fair."

Then they sign the contract. Ninety calendar days later, including weekends and holidays, Frieda has not paid off her debt so Petra sues her for breach of contract.

In court, Frieda tries to defend herself by testifying that she and Petra had agreed that she had ninety business days to pay, not ninety calendar days, so she still has time to pay.

Petra asks the judge to declare the testimony inadmissible. Should Frieda be able to introduce evidence of the oral agreement? Why or why not?

Solutions

Expert Solution

Business Contract

Contract is an agreement between two or more parties where they get into mutual understanding on certain terms and conditions. It creates and defines the duties and obligations of the parties involved.

A contract is legally enforceable if one party fails to do what he or she has promised to do, the other can ask the court to enforce the agreement or award damages obtained during the dispute because the a promise made under the contract hasn’t been kept or an act hasn’t been performed. A contract, however, can be enforced only if it meets four requirements:

Agreement: The parties must have entered into a mutual agreement.

Consideration: Each promise must be made in return for the performance of a legally sufficient act or promise. If one party isn’t required to exchange something of legal value, an agreement lacks sufficient consideration.

Contractual capacity: Both parties must possess the full legal capacity to assume contractual duties. Both parties are fit and able to abide to the terms of the contract.

Lawful object: The purpose of the contract must be legal. A contract to commit an unlawful act or to violate public policy is considered as void.

Oral Contract

An oral contract is a type of business contract that is outlined and agreed upon verbal communication, but not written down. Although it can be difficult to prove the terms of an oral contract in the event of a violation, it can be enforced.

A verbal agreement is enforceable if there is an offer made and accepted. In some cases, an oral contract can be considered binding, but only if it’s evidenced by a written contract. This means that once the oral contract has been agreed upon the parties must write down the contract terms. Another way to help prove a verbal agreement is by getting witnesses who were present when the agreement was made, to testify. In addition to having witnesses and written evidence, you can also prove a verbal agreement by the actions of the parties. When one or both parties act on the contract, this too can be construed as evidence that a contract existed. Furthermore, letters, memos, bills, receipts, emails and faxes can all be used as evidence to support the enforceability of an oral contract. Handshake deals still constitute an official agreement, and a number of powerful players still implement the use.

It’s important to remember that when entering into handshake deals, the best way to be on the safe side is to have a witness as well as the actual act of agreement. If you are relying on a handshake agreement especially one that does not have any witnesses, the next best step is to act on the contract as soon as possible.

By acting on a verbal agreement immediately, you are providing additional evidence that the deal does in fact existed and you have been in compliance on your end. In addition to acting on your claim, there are other ways to support your contract, such as maintaining correspondence about it and even drafting a simple thank you letter regarding the agreement.


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