Oral contracts do exist, and the U.S. Postal Service cannot force you to sign a contract with different terms than previously agreed upon. That’s the take-way from a recent decision issued by the Postal Service Board of Contract Appeals (PSBCA) in a case called Sharon Roedel, PSBCA No. 6347, 6348, April 10, 2012.  The PSBCA found that the Postal Service breached an oral contract it had with Roedel, and that USPS owed her the profits and wages she would have earned under the six-month emergency contract. 

It all started when the regular mail contractor was hospitalized. The contract specialist solicited emergency replacement service by telephone and orally agreed with Roedel to a price and a six-month term.

Roedel would have to give up her current job to take the new contract, so she asked the contract specialist whether the contract would last the full six months.  She was told that it would.

Because Roedel started performance the very next day, there was no written agreement in place. While Roedel was performing the route, the contract specialist prepared a written contract using PS Form 7405A. Contrary to what the specialist told Roedel, the written contract contained a termination clause. The termination clause stated that the Postal Service could terminate the contract on 24-hour notice without payment of any indemnity or extra pay to the supplier. Roedel did not receive the contract until several days after she had started performing, and didn’t look at it right away.

Sure enough, the regular contractor recovered and was allowed to resume performance of the contract just one week after Roedel started the emergency contract. Three days after Roedel had resigned from her previous job, the Postal Service informed her that the prior contractor would return and her contract was being terminated on 24-hour notice.

Roedel was extremely surprised and upset when she heard that the contract was going to be terminated. The contract specialist told her that there was nothing she could do, and her only recourse was to appeal.

Worse still, the contract specialist told Roedel that she would have to sign the written contract – which contained the termination clause -- or she would not be paid for the work she had performed. In need of the money, Roedel signed the contract. She then filed a claim for the full contract price, and the PSBCA case began.

The Board’s holding

After a hearing, the Board found that the parties had entered into an enforceable oral contract before Roedel had started performance. The Board also found that the oral contract did not include a termination clause. While the contract specialist testified she told Roedel that the contract would include a termination clause, her testimony was contrary to Roedel’s recollection, Roedel’s surprise upon learning the contract had been terminated, and the pre-award questionnaire. The pre-award questionnaire stated that the only possibility for Roedel to be released from the contract would be for medical reasons. The Board noted that if the termination clause been in the oral contract, Roedel would have a right to terminate the contract on 15 days’ notice – not just a right to terminate for medical reasons.

The Postal Service argued that even if the contract specialist failed to mention the termination clause, she had meant to, so there was no “meeting of the minds” as to a material term of the contract. The Board dismissed this argument, holding that the subjective, unexpressed intention of one party is irrelevant to determining the terms of a contract. It would be far too convenient to allow a party to renege on a contract whenever that party contends it had a contrary unexpressed intention.

The Postal Service contended that the written contract that Roedel later signed superseded the oral contract, and the written contract contained a termination clause. But the Board found that Roedel had signed that contract involuntarily based on economic duress. Roedel believed she had no alternative to signing the contract because the contract specialist told her that she would not be paid if she refused. Roedel was desperate to be paid because she had just resigned from her job. The Postal Service’s improper threat not to pay Roedel for work she performed and for which she was indisputably owed constituted improper coercion. The Board thus held that Roedel was not bound by her signature on the written contract.

For damages, the Board found that Roedel was entitled to recover both her anticipated profit and the wages she would have earned had the contract gone its full six-month term. While Roedel had a duty to mitigate damages, she had just resigned from her job and did not find employment for the duration of the contract term.

The Board thus found that Roedel had a valid oral contract and she could not be forced to sign a written contract that differed materially from what was agreed upon before performance started. Note that in most cases, the parties anticipate that their final agreement is to be reflected in a written document. But as was held here, one party cannot seek to change the terms of an agreement after the other party has already begun performance of it.