Many companies in the US have always exercised caution when entering into oral contracts due to the widely held perception that such contracts may not be binding. But if the case involving ‘International Watersport Management Ltd and Pearl Creations Company Ltd’ is anything to go by, oral contracts are indeed as valid and binding as written ones. In this case, the Watersport shipping company had offered an oral charter that it could deliver live oysters to the agreed location within 8-10 hours. Basing their thinking on the oral charter, the managers of Pearl creations hired the company to deliver the oysters at a location in Lisa’s Beach, Tonga. Experts had earlier warned that the sea trip should take less than 10 hours if the live oysters were to reach their destination alive. But contrary to the oral contract, the voyage took in excess of 22 hours to deliver the oysters, occasioning great loss to the plaintiff and death to the oysters. On trial, the plaintiff successfully depended on the oral charter to win huge reparations for the loss (Bois-Singh, 2004).
By definition, an oral contract is a legally binding verbal agreement made between two or more parties. An oral contract is validated by existing physical evidence rather than written documentation. In some forms of oral contracts, the parties may document what they have agreed upon in written form; but the binding contract itself is never documented (Stempel, 2006; Cadena, 2008). Many companies develop cold feet from the very fact that it may be somewhat challenging to show and prove the existence of an oral contract in a court of law if one party decides to breach the terms of engagement. This notwithstanding, the companies often find themselves relying on oral contracts due to the very nature of work they engage in. In logistics business, both the company and the clients may never have adequate time to prepare an all-binding written contract to direct their transactions. An oral agreement comes in handy during such situations.
In the US, oral contracts are generally acceptable under the common law of Anglo-American judicial system unless when such contracts are subject to malice or the statute of frauds (Stempel, 2006). This stature requires parties to initiate some form of writing that serves as evidence to the agreement. However, this does not mean that the full contract must be documented in writing. Parties may indeed overlook the need to write down anything by using existing legal doctrines such as the concept of detrimental reliance. The statute of frauds was legislated by the US parliament to curtail the notion that oral contracts were too permissive in law. It also serves to restrict parties from seeking unorthodox channels to escape censure when they are in breach of a binding oral contract.
While oral contracts have their own disadvantages, most US transport and logistics companies have indeed benefited from them. According to Stempel (2006), it is now easier for these companies and others to access automobile insurance policies without wasting vital time. Oral agreements have also benefited the companies as they can transact business using an interim insurance while they await the delivery of a written one. This facility has in turn reduced disturbances brought about by external factors such as insurance policies, ultimately translating into more profits for the companies. The contract can be reached at instantaneously, taking effect without unnecessary delays. This is good for any company as it will definitely reduce the time lost in doing paperwork.
Oral contracting, just like other forms of contracts, has some grey areas which might prove costly for the company if proper measures are not taken. Companies engaging in oral agreements must exercise care about how they retain the physical evidence since lack of such ‘physical documentation’ may complicate matters in a court of law (Stempel, 2006). As such, parties seeking to enter into an oral contract must always ensure that witnesses are present when the deal is sealed. Judges largely depend on physical, circumstantial, and compelling evidence when deciding on cases arising from oral contracts (Cadena, 2008).
When the oral agreement does not work as expected, parties may avoid taking accountability or responsibility by using the shortcomings of the agreement. The potential for misunderstanding is also high, thereby increasing the chances of litigation if the matter comes up in a court of law (Stempel, 2006). In the same vein, the lack of concrete objective facts and evidence provides fertile bleeding ground for fraud and incorrect court judgments. The agreement has also been accused of lacking in vital information that must generally be present to validate the agreement. For instance, a logistics company may orally commit itself to buy some insurance policies from an agent without first getting an appraisal about the limitations of such policies. Such lack of information will most probably bring misunderstanding between the expectations of the company and the plans of the insurer.
According to Ackerman & Dynkowski (2006), “the implied contract theory stems from the proposition that when a condemnor takes property without commencing eminent domain proceedings, the condemnor has implicitly agreed to pay for the property” (p. 106). This therefore means that the contract arises from the conduct, intentions, and relationships among the parties to the agreement. According to the US laws, an agreement is implied when one party, in full knowledge of its intentions, accepts a benefit or an undertaking from another party in situations where such a benefit or undertaking cannot pass as a gift or free service. Therefore, the acceptor of the benefit is legally obliged to return a fair value to the other party for the benefit received (Ackerman & Dynkowski).
This form of agreement is mainly used in logistics where a customer does not need to write down agreements and make physical contacts with the transport company to effect a transaction. When the transport company makes an offer of acceptance to haul customer’s commodities, the company is legally bound to do exactly that due to the very conduct and actions they express in the agreement. This translates to the fact that a legally binding agreement can be evidenced by actions of the parties involved (Ackerman & Dynkowski, 2006; Cadena, 2008). However, it becomes extremely difficult to establish the existence of an implied contract in the event of a dispute.
The extent to which these two contracts – oral and implied – are abused in the US clearly shows that many people and companies have inadequate knowledge about them. Some individuals and companies go ahead to give promises that are unattainable, not knowing that such promises can occasion huge losses in prolonged legal battles. The case of ‘International Watersport Management Ltd vs. Pearl Creations Company Ltd’ put everything into perspective. Binding laws and agreements does not only exist in written documentation. The ship-owners in this case must have learnt the hard way that oral and implied contracts indeed do exist (Bois-Sign, 2004). These contracts form the very basis of everyday business transactions for many businesses.
Reference List
Ackerman, A.T., & Dynkowski, D.W. (2006). Current condemnation law: takings, compensation and benefits. American Bar Association. ISBN: 1590317025.
Bois-Singh, S. (2004). “International Watersport Management Ltd v Pearl Creations Company Ltd [2002] TOCA7.”Journal of South Pacific Law, vol 1, issue 1.
Cadena, C. (2008). Developing an agent relationship: written, oral, and implied contracts. Web.
Stempel, J.W. (2006). Stempel on insurance contracts, vol 1. Aspen Publishers Online. Web.