Oral contracts can be as binding as written ones, but that doesn’t mean that you should rely on an oral contract. It is much better to get it in writing.
Consider Yash Venture Holdings, LLC v. Moca Financial, Inc., No. 23-3200, 2024 U.S. App. LEXIS 21853 (7th Cir. Aug. 28, 2024). There, the plaintiff alleged that he agreed to provide software development services in exchange for 15% of the equity in a company. They exchanged documents but never signed an agreement, and during the negotiations, the company reduced the equity share for plaintiff. When plaintiff said he never agreed to dilution, the company ended negotiations and gave him no equity at all. The court dismissed the claim and the Seventh Circuit Court of Appeals affirmed the ruling finding that whether plaintiff’s interest could be diluted was a material term to the parties and they never agreed on this term; even the written documents exchanged by the parties never discussed whether plaintiff’s equity could be diluted.
An interesting question is presented by the way the plaintiff structured the complaint: it alleged that the defendant offered 15% of equity and the plaintiff accepted the offer with the understanding that the 15% would not be diluted. The offer and the acceptance didn’t match, and the law requires them to match. I wonder whether, if the plaintiff had alleged an offer for 15% equity and an acceptance of that offer, the dilution question could have been left to the corporate governance agreements and statutes.
For a copy of the case or to discuss your contract rights and responsibilities, get in touch with Thomas E. Patterson at tpatterson@pattersonlawfirm.com