Business owners may wonder if verbal contracts are binding. They can be difficult to enforce in court, so written contracts are encouraged.
In the past, a person’s word or handshake was widely considered as binding as a contract. While verbal contracts might not have been encouraged by the legal community at the turn of the 20th century, in much the same way it is not the norm today, many business owners operated on verbal agreements. Texas business owners may wonder whether oral agreements can hold up in court in the event of a disagreement.
Many business transactions, ranging from a customer sale to an agreement with a subcontractor, are meant to be friendly. For this reason, a particularly trusting business owner may consider a verbal agreement sufficient. However, it is important to note the ways in which a written contract can protect one’s business interests, as well as the interests of employees, clients and associates.
A verbal agreement can complicate a dispute
Perhaps a sandwich shop owner had a longstanding arrangement with a local baker to deliver fresh rolls each morning, but no formal written contract was ever drafted. Or, the owner of a construction company agreed over the phone with a subcontractor on supplying the materials for a client’s home addition. In either case, the lack of a written contract may present problems down the line.
For example, after the bakery owner dies, her son, who took over the family business, might not agree on the terms of daily delivery or the price the two business owners agreed upon years ago. If the building subcontractor fails to deliver the materials on time or delivers the wrong items, the construction company owner may have a difficult time having the agreement upheld.
Statute of frauds nullifies some oral contracts
The statute of frauds can also complicate a verbal contract. Meant to protect the parties of an agreement from fraud and breach of contract, the statute of frauds requires written contracts in the following situations:
· Transactions over a certain monetary amount, depending on the state
· Contracts that would typically take one year or longer to complete
· An agreement to pay someone else’s debt
· Agreements that are meant to last longer than one or both parties’ life
· Real estate sales
· Transfers of property upon the owner’s death
Verbal contracts may, in some instances, be enforceable in court. However, proving that both parties agreed on the same details and that a breach of contract occurred can be difficult, if not impossible, if the agreement was made orally. It can be in everyone’s best interests to create a strong, binding contract at the beginning of a business arrangement.
Most business owners, customers and subcontractors will find that legal, written contracts do not have to sacrifice friendliness. Those with questions on written agreements and contract disputes may wish to speak with an experienced business litigation attorney in Texas.