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Q: Verbal contracts and new ownership

The founder of a theatrical venture asked me to devise a slogan for his business. We had a verbal agreement that in place of a fee I would receive a discount on any purchase I made from him. The new owner of the enterprise says he does not believe this promise was ever made. What comeback do I have?

A: A verbal agreement, with one or two exceptions which do not apply here, is every bit as good as a written one so far as enforceability is concerned. It is, however, much more difficult to prove the terms of a verbal agreement than a written one, for obvious reasons. In a civil case the burden of proof is on the claimant to establish the facts on the balance of probabilities. If it is one person's word against another's, then in the final analysis it is a question of who the judge believes and, if he has no reason to prefer one person's evidence to the other, the claimant will not have discharged the burden of proof and his claim will fail, so that is your first problem.

You are also faced with the problem that if all you agreed was that you would receive an unspecified discount on any "purchase" of an unspecified nature for an unspecified price which you might make from the business for unspecified goods or services over an unspecified period of time, such an agreement, even if established in those terms, would probably be unenforceable by reason of uncertainty.

Furthermore, you might not want to make any such purchases and even if you do, the other party might not agree to sell you the items concerned or might offer to sell them to you at an unacceptable inflated price, in which case your "agreement" appears to be silent as to the consequences.

If the parties to a contract do not make the essential contractual terms clear, either expressly or by implication, the court will not create a contract for them by filling in the gaps, unless their mutual intention can be established from the surrounding circumstances or the context in which the discussion took place or by other evidence. In some cases, depending on the circumstances, the court may infer what is called a quantum meruit or "reasonable" sum of money according to what the subject matter was worth, but in the circumstances you describe I doubt very much whether the court would assess a reasonable discount for a reasonable period on reasonable purchases at reasonable prices, because there is far too much uncertainty in too many areas.

You should think very carefully and try to remember precisely what was said at the time the verbal agreement was made, because it might just be possible to infer an option for you to submit an invoice for a reasonable fee for devising the slogan. After all, it stands to reason that you are not likely to have agreed to do the work for nothing and one would expect in such circumstances that you would have reserved the right to submit an invoice for a reasonable amount if, for example, there was nothing you wanted to purchase from the other party, or nothing he was willing to sell you at an acceptable price. A careful analysis needs to be made of precisely what was said at the time and what, if any, inferences can be drawn from it.

Assuming that you could establish the existence of an enforceable agreement, and assuming you could persuade a court to assess compensation for breach of contract on the basis of a quantum meruit, the next question which arises is against which party you should pursue your claim - in other words, whether it should be the so-called "founder" of the venture or the party you describe as "the new owner of the enterprise". That depends on whether the "enterprise" is a limited company or an unincorporated business. If it is a limited company whose founder made a contract with you on the company's behalf, then a change of ownership of the company does not affect the company's liability under the contract.

If it was an unincorporated business, the assets of which have simply changed hands, then the original owner, whom you describe as "the founder" and any partner or partners of his in the business at the date he made the agreement with you (assuming it was made on behalf of the business partnership and not just by him personally as an individual) will remain liable and not the new owner, because the latter was not a party to the contract with you.

To sum up, it is possible but by no means clear that you may have a comeback, depending on the circumstances and subject to the difficulties I have outlined above.

First published November 2004