A verbal contract isn’t worth the paper it’s written on.
— Samuel Goldwin
Our society still values agreements “on a handshake.” For most of us, it is a point of honor that we are trusted by those with whom we do business. But I consult with a steady stream of persons who are the victim of handshake deals gone wrong. When is it prudent to have a written contract?
Legally, the word “contract” refers to any agreement in which the parties exchange promises. That agreement can be, and is often, oral and not written down. Oral contracts are theoretically just as enforceable as written contracts with some exceptions. If a handshake is good enough to compel the parties to meet their promises, then there is no reason to write anything down.
However, there are three reasons why the parties might consider writing down the agreement. The first is simply to avoid misunderstandings. You might be surprised how frequently it appears that each party is, in good faith, accusing the other of bad faith. Imperfect human communication can cause parties to think they are agreeing when they are not. And our frail memories can cause parties simply to remember the deal differently. Writing the agreement down avoids these misunderstandings.
Second, enforcing an oral agreement is difficult when the other party decides to act in bad faith. The problem is not a legal one but rather a factual, or evidentiary, problem: What really was the agreement? Without written evidence, a court must decide who is telling the truth, perhaps based solely on the parties’ testimony, which is an error-prone process. Consequently, enforcing oral agreements can be difficult.
Finally, there are some agreements that are generally (with exceptions) not enforceable unless they are in writing. These include agreements that will last for more than a year, agreements involving the transfer of an interest in real estate (including leases), contracts for the sale of goods greater than $500, and other more rare circumstances. These agreements must be in writing.
The bottom line is to consider writing down the essential terms of the agreement if your inability to enforce the agreement will create a hardship for you. In particular, consider a written contract either if the agreement has some complexity that could result in a misunderstanding, if you do not completely trust the other party, or if the stakes are high. Good candidates for written agreements include leases (residential and commercial), partnership agreements, long-term agreements, and any agreement where one party’s performance comes after the other party’s performance. Also consider writing down agreed amendments to the original contract.
When the deal is complex and the stakes are high, an attorney may be helpful in drafting the contract. Lawyers are trained to recognize where deals can go wrong because of misunderstandings, unexpected events, or a party’s bad faith. They know how to draft an agreement that avoids these problems and is enforceable in court.
However, a written contract need not be drafted by an attorney to be valid. In many cases, as long as the parties right down the essential terms—price, quantity, quality, issues of time, etc.—and sign the writing, they are much more likely to avoid a problem.
No one should be offended if a party wants to write down an agreement. Consider a party’s request to write down the essential terms to be his assurance that he does not want anything to go wrong with the deal and the relationship. Written contracts are like insurance policies: inconvenient but sometimes necessary to avoid disaster.
This website provides general information to the public on legal issues. These informational materials are not intended, and should not be taken, as legal advice on any particular set of facts or circumstances. You should contact Brandli Law for advice on specific legal problems.
Copyright 2015 Brandli Law PLLC