Business deals are not always documented before the work begins. One person may agree to bring customers, develop business, provide services, or contribute to a venture in exchange for a percentage of the resulting profits.
A dispute may arise after the business succeeds and the promised share is not paid.
Can an Oral Agreement Be Enforceable?
Potentially. California Civil Code section 1622 provides that contracts generally may be oral unless a particular agreement is required by law to be in writing.
The important questions usually concern what the parties actually agreed to and whether the agreement falls within an exception requiring a writing.
For example, Civil Code section 1624 requires certain contracts to be written, including an agreement that, by its terms, cannot be performed within one year.
If the claimed profit-sharing arrangement also amounts to a partnership or joint venture, additional rules may apply. California recognizes that a partnership or joint venture may, in appropriate circumstances, be created orally or inferred from the parties’ conduct. Weiner v. Fleischman (1991) 54 Cal.3d 476, 482–483.
What Evidence Can Prove the Agreement?
An oral agreement creates an obvious evidentiary problem: the parties may later disagree about what was promised.
Contemporaneous evidence can therefore become important. Relevant evidence may include:
- emails and text messages discussing the percentage or formula;
- records showing the work or business contributed by each person;
- payments previously calculated using the claimed percentage;
- accounting records and financial statements;
- communications with third parties concerning the arrangement; and
- evidence showing how the parties acted before the dispute arose.
The wording matters. A definite agreement to pay a stated percentage of profits is different from a vague statement that someone will be rewarded if the business succeeds.
What If the Other Side Received the Profits but Refuses to Pay?
The available claims depend on the relationship and the agreement. A contract claim may present different issues from a claim based on an alleged partnership or joint venture. If a partnership or joint venture existed, fiduciary and accounting obligations may also become relevant.
The first task is therefore to identify the agreement, determine whether it was legally enforceable, and trace the revenue or profits from which the claimed share would be calculated.
Authorities: Cal. Civ. Code §§ 1622, 1624; Weiner v. Fleischman (1991) 54 Cal.3d 476.
Related practice areas: Civil Litigation · Corporate Governance & Shareholder Disputes