When disputes arise between business partners, they commonly look to their written contract or partnership agreement for direction. If the dispute ends up in litigation, the court also will look to the agreement. Unfortunately, some business partners have no written agreement, but have relied solely on an oral agreement in operating their business. While oral agreements can function perfectly well for some business partners, that is the exception rather than the rule, and they tend to fall apart quickly when a dispute arises.
An oral contract is much more difficult to enforce because the parties are likely to disagree on the terms. In fact, each party may have a completely different interpretation of the oral agreement based on the negotiations leading up to the business formation—negotiations and statements that may have occurred years ago. However, oral agreements can be legally enforceable, depending on the nature of the agreement.
Some transactions or contracts fall within Arizona’s Statute of Frauds, which means that they must be memorialized in writing to be legally valid and enforceable. They also must be signed by the party against whom enforcement of the contract is sought. For these types of contracts, oral agreements are insufficient. For instance, transactions that deal with real estate, whether it is a lease agreement for more than one year or a purchase agreement, must be in writing. Likewise, contracts that will necessarily take more than one year for a party to complete must be written, as well as transactions involving the sale of goods in excess of $500.
On the other hand, a partnership agreement need not be in writing, particularly if, under the terms of the contract, the parties have been performing under it for some time. A partnership agreement exists if the parties have agreed to be co-owners of a business for profit. No writing required. In that situation, the court will look very closely at three things: (i) what the parties said to one another when forming the partnership, which is often found in emails, or based on what the parties recollect in their testimony; (ii) how the parties have actually performed under the agreement, before the dispute arose, because that is good evidence of what the parties intended; and (iii) what is fair under the circumstances, because without a written agreement the court has great latitude to simply do justice.
If you have issues or a dispute regarding a business partnership, whether based on an oral agreement or otherwise, you should call us today and get the advice that you need. Williams Mestaz, L.L.P., has the experience and knowledge to handle your case the right way. Contact Williams Mestaz, L.L.P. at (602) 256-9400.