In an opinion handed down yesterday, the Fourth District Court of Appeal upheld an “oral” stock option agreement. Maughan v. Correia, Cal. Ct. of Appeal Case No. D058957 (Oct. 24, 2012). The case arose from a fight between a brother and sister over ownership in a family run corporation. The sister had sued her brother to enforce a stock option agreement. Curiously, the trial court and the Court of Appeal refer to the agreement as “oral” but there actually was a written stock option document that included signature lines below the statement “By signing below I certify that, to the best of my knowledge and belief, . . . the information set forth in this statement is true, complete and correct.” However, neither party signed the agreement.
In the portion of the the opinion not certified for publication, the Court of Appeal found that the record supported the trial court’s finding that the parties orally entered into the stock option agreement. In reaching this conclusion, the Court of Appeal noted that while an offeror may prescribe the an agreement be signed in order to be binding, there was no evidence of any oral or written requirement for a signature. In this regard, the court observed:
Notably, this portion of the agreement does not contain language along the lines of the following: ”By signing below I agree to the terms herein,” or ‘Agreed,” or “Your signature below is required.”
(emphasis in the original). Perhaps those words at the tail end of a document have substantive importance after all! The Court of Appeal also noted that trial court had found that after the agreement had been entered into, the parties had acted in accordance with the agreement in many ways.
For those wondering about the Statute of Frauds, the Court of Appeal made no mention of it. Perhaps the defendant did not claim this defense because Section 8113 of the California Commercial Code provides:
A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one year of its making.
Thus, the case may properly be understood as a case of offer and acceptance rather than whether a signed writing was required.
Although I remain ever fearful of the charge of pedantry, I insist on distinguishing between the words “oral” and “verbal”. As Fowler’s Modern English Usage (2d ed. 1965) points out:
The primary meaning of verbal is consisting of words. Written contracts . . . consist of words no less than spoken ones, and we have had for more than 300 years another adjective – oral- with which to distinguish the spoken word from the written.