Enforcing Oral Contracts: The Presumption is Against You

Enforcing Oral Contracts: The Presumption is Against You

May 1, 2014

Oral contracts are often difficult to enforce because the facts are contested or remembered differently. The age-old admonition to “get it in writing” is as valid today as in the days of scriveners with quill pens. David Martin found this out the hard way when his lawsuit for breach of an alleged oral severance contract was dismissed on summary judgment in Lynchburg, Virginia. David C. Martin v. NAES Corporation was decided in the U.S. District Court for the Western District of Virginia on November 6, 2013.

The Case: David C. Martin v. NAES Corporation

Martin was employed by NAES as a technician under a contract with Dominion Power to operate the Altavista Power Station. In the summer of 2010, NAES notified its Altavista employees that it planned to close the plant and would lay off most of the employees. They would also be provided severance packages based on one week’s pay for each year the employee had worked at the Altavista station.

On November 15, 2010, NAES asked Martin to take a short term assignment at the Gordonsville Power Station. Martin alleged that he agreed to the assignment but only on the condition that he would remain eligible for the anticipated severance package “no matter what.” He contended that this was agreed to between the parties.

Martin received his termination notice and severance offer on December 15, 2010. The notice gave him 21 days to accept the package. He alleged that he accepted it on December 28. However, on December 21, NAES offered Martin a permanent position at the Pittsylvania Power Station. Martin inquired as to whether he could take the job and keep the severance. NAES said he could have one or the other but not both. Martin felt this was contrary to the expressed understanding reached with NAES in November. On December 28, he signed the transfer agreement accepting the Pittsylvania assignment but noted that his signature was “under duress.”

When is Summary Judgment Typically Granted?

Under federal law, summary judgment will be granted when there are no unresolved questions of material fact, and the moving party is entitled to judgment on the law. In this case, the court found there was no factual dispute but only a difference between the parties as to what the facts required. Martin argued that the severance offer had been made, was never revoked and was accepted by him; therefore, his right to this package had been established when he took the Gordonsville job.

While Martin believed that, once accepted, he was entitled to the severance package “no matter what,” the written offer made clear that acceptance of the Pittsylvania assignment would terminate eligibility for the severance package, unless he was laid off from that position on the same timetable as had existed at Altavista. His endorsement of the transfer agreement “under duress” had no legal effect. Under Virginia law, duress is “the application of undue pressure in a contractual bargaining process through the use of improper threats or physical force.” Reluctance for financial reasons does not support a claim of duress.

Oral Agreement vs. Written Agreement

In Virginia, an oral contract is enforceable if it is reasonably certain, definite and complete. But, it is always difficult for the proponent of an oral agreement if the writings between the parties suggest a different arrangement. The facts as reviewed by the court demonstrated that Martin was attempting to have the benefit of both opportunities, even though the documents suggested they were mutually exclusive. If other oral promises had been made, Martin erred by failing to obtain them in writing.

Because writings are permanent, the product of considered thought and available for review and analysis, the law has always preferred written agreements to the variable recollections that can constitute oral understandings. The logic of this conclusion is unshakeable, but it doesn’t stop people from leaving important agreements to the whim of memory every day.