What Constitutes a Verbal Contract?

June 25, 2007 7:01 AM

About a year ago I agreed (verbally) to do some programming work for a startup in exchange for a small amount of equity. In the meantime I've lost faith that this equity will be worth anything. Can I decline to do this work, or have I made a binding verbal contract that I must now fulfill?

When is agreeing to something verbally a contract, and when can a person simply say "I've changed my mind"?

posted by anonymous to law & government (15 comments total)

No, it was a verbal agreement. People back out of them all the time. Tell them that a year has passed without actualization of the agreement and that you would like to work out a new agreement based on your own pre-existing feelings. Once these are brought to the surface, they will probably tell you no hard feelings and move on.
posted by parmanparman at 7:05 AM on June 25, 2007

it was a verbal agreement

How is that different from an oral contract? That's a distinction without a difference.
posted by oaf at 7:31 AM on June 25, 2007

"in exchange for a small amount of equity"

Have you already accepted the equity? If so then you have been paid, and must provide the service. If not, you should be able to refuse, just based on the amount of time that has passed.
posted by blue_beetle at 7:42 AM on June 25, 2007

How specific was "some programming work" or "small amount of equity?" Even if this was an oral contract, it sounds too vague to be enforceable.

I am not a lawyer.
posted by debit at 7:48 AM on June 25, 2007

Law.com's dictionary definition of oral contract is helpful:

An oral contract is often provable by action taken by one or both parties which is obviously in reliance on the existence of a contract.

So, are they relying on your agreement to do the programming work? Also, was the agreement detailed enough to be acted on (i.e. program specifications, due date, amount of equity to be given)? The answers to these questions will give you a clearer idea of whether or not you have an oral contract.

For what it's worth, you are certainly able to decline to do the work; if the contract is valid and they sue you on it you'll most likely just have to pay damages.

IANAL.
posted by AV at 8:32 AM on June 25, 2007

If they have been operating under the assumption that you'll be doing this work for them, your pulling out will be a big blow to the plans they've already made, and you've been aware this year that they're depending on you and haven't said anything, then you're probably obligated. If not, then I wouldn't worry about it.
posted by monkeymadness at 8:34 AM on June 25, 2007

Oh, and IANAL, but if they're a startup paying in equity then it's not like they can afford one of their own, either.
posted by monkeymadness at 8:35 AM on June 25, 2007

I'm 1/3 of a lawyer. I'm not your lawyer, don't take my advice, get a real lawyer, blah blah blah.

At the very basic level, you've made a binding oral contract. There's been an offer and acceptance to trade services for payment.

However, contract law has been made up largely of people who have tried, successfully or not, to weasel out of contracts, both good and bad. There's a lot of weasel room here. It helps if there's been no reliance on your offer. Even if there has been reliance, if the change in the value of the equity has been significant, you can argue that the circumstances have changed to the point of materially altering the bargain.

Since it sounds like they're not really holding your feet to the fire yet, see if you can duck out of doing the work, find somebody else to take it (if you find someone else, they probably won't care that you're backing out), or offer to do it for money. Sounds like things are pretty informal at this point, so you can probably resolve things amicably in a way that leaves both sides happy with the result.
posted by craven_morhead at 9:05 AM on June 25, 2007

As a general matter (common law, often codified into statute), contracts that can't or aren't to be performed within a year MUST be in writing.

The reasoning is that after a year has passed, people tend to forget what was actually said in an oral agreement.

So while an oral agreement is in theory as enforceable as a written one[1], you shouldn't feel any qualms about backing out of this agreement when a year has passed without action. It clearly wasn't much of an agreement to start with.

[1] Though much more disputable.
posted by jellicle at 9:10 AM on June 25, 2007

I think legally you won't have much of a problem, but IANAL. If it's just an oral contract, they'll have to prove that you said you'd do such and such and everything else that others have discussed.

Morally, however, you're a total douchebag if you don't pony up and do what you said you'd do. You knew full well when accepting the job offer in the first place that the equity in the company had a variable worth, and apparently you just banked on it being on the high end. Now you're disappointed that it's not. Would this be any different from taking a job at a certain rate of pay and then deciding you can't work there any more if your local currency loses value? Why shouldn't you keep your word?
posted by LionIndex at 9:25 AM on June 25, 2007 [2 favorites]

It would be interesting (but we can't ask, since you're anonymous!) to know on what basis you've changed your mind. Why the loss of faith? A lot happens in a year in a startup. Was there mismanagement? Has there been a change of key personnel or projects? If the whole thing has seriously morphed from the sort of entity you had originally agreed to do work for, it's reasonable to back out.

Yes, normally you should keep your word, but if the company itself has seriously changed, then you probably have a case for bailing.
posted by solongxenon at 10:32 AM on June 25, 2007

When you agreed to this, what was your understanding as to the time involved? I assume you were to get specifications or further details from them before you could begin work. Is this correct? If they have not done this within a reasonable time, you could argue that the agreement has lapsed. (However, what is 'reasonable' can vary, and I have no idea what is a reasonable time frame in your line of work.) They can't leave you hanging indefinitely, just because no time was specifically agreed in advanced.
posted by happyturtle at 10:37 AM on June 25, 2007

As a general matter (common law, often codified into statute), contracts that can't or aren't to be performed within a year MUST be in writing.

This is called the Statute of Frauds.
posted by grouse at 5:22 PM on June 25, 2007

Grouse (and jellicle), the Statute of Frauds probably doesn't apply here. SoF's one-year provision only applies to contracts which CANNOT be performed within a year. Whether or not the contract actually WAS performed within a year is usually immaterial. Courts don't really like the one-year provision, and will usually try to bob and dodge to avoid torpedoing a contract on its grounds. Here, it looks like the programming could be done within a year, so the SoF doesn't kill the contract.
posted by craven_morhead at 8:14 AM on June 26, 2007

Oh, I misunderstood, I thought that anonymous's agreement was that he wouldn't do the work for a year, not that he has been delaying it.
posted by grouse at 9:04 AM on June 26, 2007