Can One Recover Damages From An Oral Contract?
In Jannusch v. Naffziger, a recent Illinois Appellate Court decision, the court addressed the issue of whether one can recover damages from a breach of an oral contract. Jannusch v. Naffziger, 379 Ill.App.3d 381 (4th Dist. 2008). In the case, the sellers of a concession business entered into an oral agreement with the buyers to purchase the concession business and the equipment. Id. The buyers made an initial payment to purchase the business, worked some events, and then, returned the business equipment to a storage facility at the end of an economically disappointing event season. Id. As a result, the sellers brought an action against the buyers for breach of an oral contract. Id. At trial, the court applied the predominant purpose test to determine whether the contract is for the sale of goods or services. Id. The court determined that the contract was for the sale of goods, and thus, applied the Uniform Commercial Code (“UCC”) as the governing body of law. Id. The Illinois trial court then held in favor of the buyers, reasoning that there was a contract formed, however, the evidence was insufficient to establish by a preponderance of the evidence that there was a meeting of the minds as to what that agreement was because there were missing terms. Id.
On appeal, the Illinois 4th District Appellate Court held that the trial court was correct in applying the UCC. Id. However, the appellate court overruled the trial court’s final ruling, holding that the parties' agreement contained essential terms and was sufficiently definite to form a sales contract and that the buyers did breach the oral contract. Id. The court found that the oral agreement for the sale of the concession business and its equipment contained essential terms and was sufficiently definite to form a sales contract, where the purchase price was $150,000, buyers paid a portion of the purchase price, items to be transferred were specified, and buyers took possession of the items to be transferred and used them as their own even though the agreement did not allocate the price of the equipment and goodwill, did not contain a covenant not to compete, and did not contain terms on how to release liens or the effect of buyers not obtaining loan approval. Id. The court reasoned that a contract may be enforced, even though some terms may be missing or left to be agreed upon, unless the essential terms are so uncertain that there is no basis for deciding whether the agreement has been kept or broken. Id.
In support of its holding, the court further held that an oral contract for the sale of goods, which has been partially performed, is enforceable. Id. The Illinois Appellate Court stated that the conduct of parties to a contract may indicate an agreement to its terms, even if the parties do not share a subjective understanding as to the terms of that contract. Id.
In conclusion, the court held that the buyers breached the oral sales agreement concerning the concession business and its equipment by returning the equipment at the end of an economically disappointing event season after having made a $10,000 payment on the $150,000 purchase price. Id. The court reasoned that the fact that a formal written document is anticipated does not preclude enforcement of a specific preliminary promise. Id.
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