Contracts: Verbal vs Written

Contract with pen toned blue

Proving Oral Agreements in Court*

Agreements are essential to completing tasks and working with vendors and suppliers. In both your personal and business life you will need to hire professionals, confirm agreement terms and prices, validate services offered and prove value. A contract, oral or written, is an effective way to secure services.

A verbal contract, by definition, has no written component. The main drawbacks of an oral agreement are its strength in court and the lack of a written record between the parties memorializing the terms of the agreement. The absence of a written agreement can open the door for disputes down the road. In most cases, verbal contracts are valid in court, but oral contracts are usually harder to prove.

The most common way to prove the existence of a verbal contract is through witness testimony. For example, if Jane and John enter into an oral agreement in the presence of Jim and Betty then the testimony of Jim and Betty can be used in court to prove the existence and validity of the contract.

Course of conduct is another way to prove the existence of an oral agreement. If Jane offers to buy a car from John for $10,000 and John gives the car to Jane for $10,000 we can assume from their behavior (the exchange of money and goods) that the agreement was satisfactory for both parties.

Written Contracts in Business

One of the goals of the savvy business owner is to avoid business disputes, litigation and the need for a lawyer. Litigation can be expensive, and resolving contract-related issues requires lawyers. Wise business owners seek to avoid contract disputes by practicing business with written contracts.

Some business owners conduct business on a handshake and rely on their longstanding relationship with the other party as an excuse not to execute a written contract. When you enter into an oral agreement you are essentially deciding that nothing will go wrong (that’s why you don’t need to put it down on paper). However, things often do go wrong, despite the best of intentions, so it is wise to document the agreed-upon terms in writing.

It can feel selfish to send a family member or old friend a contract, but in the business world it is always best to have a written contract, signed by all parties, to prevent disputes in the future.

Enforcing an Oral or Written Contract*

Certain contracts, written or oral, are unenforceable. To form a valid contract, four essential components must be present:

  1. Offer – A promise to perform or refrain from perform a certain action.
  2. Consideration – The payment of something of value in exchange for the performance of the promise.
  3. Acceptance – Acceptance of the offer through words, deeds or performance.
  4. Mutuality – A “meeting of the minds” between the contracting parties.

Deciding Which Option is Best for Your Transaction

Consider the following questions when determining if you should use a written contract over an oral contract:

  • Trust – Is the other party a fellow business partner/friend/family member who you trust?
  • Business value – On a 1 – 10 scale, how important is this transaction to your business or reputation?
  • Legal help – Am I willing to hire a lawyer and litigate a dispute if this deal goes bad?
  • Validity – Can I prove the existence and terms of this agreement in court?
  • Terms and conditions – Are the terms and conditions of the services clear and understood by all parties?
  • Type of contract – Is this type of contract only valid and enforceable if it is in writing?

Typically the best course of action is to execute a written contract. If the agreement is important enough that you would consider hiring a lawyer to resolve future disputes arising from the deal, put it in writing.

*The advice in this article is not meant to constitute legal advice. For answers and legal advice relating to your specific situation, consult an attorney.

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