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Lack of Proof of Florida Company’s Profitability Causes Co-Founder to Lose Breach of Contract Case

handshakeA business emerged successful in the 5th District Court of Appeal in its battle regarding the payment of certain money to one of its co-founders. While the co-founder succeeded in proving the existence of a valid oral contract, his failure to prove that all of the conditions required to trigger the company’s obligation to pay had, in fact, occurred meant that the co-founder lacked proof of a breach.

New Dirt, Inc. was a Central Florida company created in 2010 by Michael Harrison and David Cattell. Eventually, a dispute erupted between the company and Harrison that led to litigation. New Dirt accused Harrison of theft and breach of fiduciary duty. Harrison countersued, accusing the company of not paying him his salary as well as not paying him back for loans he made to the company.

At the conclusion of the trial, the jury determined that the company had prevailed on only one claim and that Harrison owed no damages for that. However, the court decided that the company had breached oral contracts made between it and Harrison and awarded the co-founder damages. Harrison received damages both for unpaid salary as well as for unpaid money he had lent to the company. The trial judge reduced the amount of damages New Dirt owed to Harrison, concluding that, although he was entitled to his unpaid salary, he should not recover anything for unpaid money lent due to the statute of frauds. Both sides appealed.

The statute of frauds, which is codified in the Florida Statutes at Chapter 725, creates several categories of agreements that are only valid and can be enforced if they are placed in a written document. These contracts include, among others, contracts regarding land transactions, agreements to pay the debts of another person or entity, or “any agreement that is not to be performed within the space of 1 year.”

Since the agreement between New Dirt and Harrison was an oral one, if the statute of frauds applied, that would mean that the contract was unenforceable, and Harrison could not force the company to pay back the money he lent. This was the position of the trial judge, who ruled that the loan fell within the “agreement that is not to be performed within the space of 1 year” criterion of the statute. However, the appeals court decided that this did not apply to the oral contract the company and Harrison made. When the two sides to an agreement do not establish a specific timeframe for the contract’s completion, the statute of frauds only applies if it is impossible for the agreement’s terms to be carried out and finished within one year. Regardless of the length of time that actually transpired, it was possible that the New Dirt-Harrison agreement could be completed within one year.

Ultimately for Harrison, though, this was winning the battle but losing the war. The appeals court, while accepting the co-founder’s argument regarding the statute of frauds and finding the existence of a valid oral contract, concluded that the company was not in breach of that contract. The company had produced substantial evidence that one of the terms of the agreement regarding the payment of Harrison’s salary and the money lent to the company indicated that New Dirt was only obliged to start paying Harrison after it began profitable. While Harrison had proof of an enforceable agreement, he had no proof that the company could afford to pay him but simply chose not to. Without proof of profitability, Harrison had no proof of a breach, so the appeals court reversed the judgment in his favor.

In business litigation, as with many cases, success is not just about enough evidence but about the right types of evidence. For reliable advice and diligent representation regarding your business contracts, reach out to the experienced and skilled Florida business law attorneys at Stok Folk + Kon. Our attorneys are ready and equipped to help you defend your interests.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

More blog posts:

Default Judgment Blocks Arguments About Liability in Florida Contract Dispute Case, Florida Business Lawyers Blog, Nov. 11, 2015

Company’s Lack of Bad Intent Allows It to Escape Contempt in Florida Breach of Contract Case, Florida Business Lawyers Blog, May 27, 2015