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What Business Owners Need to Know About Verbal Agreements

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Verbal agreement between two business people being broken.

Avoid inherent risk by having your verbal agreement approved.

It is a common misconception that oral contracts are not enforceable. It is true that certain agreements must be in writing to be enforceable. For example, the statute of frauds requires agreements involving real property, marriage, performance over multiple years and the sale of goods over $500 to be in writing. If an oral agreement does not fall within one of the specified categories, it may be an enforceable contract.

Things to Consider

It is significant to note that the statute of frauds does not cover services that cost more than $500. The final determination on whether an agreement falls under the statute of frauds (and therefore requires a written document) falls with the courts. Many courts follow the Uniform Commercial Code’s definition of the statute of frauds.

Before you start making “handshake” deals, remember that you must still have the ability to prove the existence of a contract in court. Having several witnesses to an oral agreement could be an effective way to prove the oral agreement took place. However, having your handshake deal be put into writing is not only the wiser and safer decision but will save you significant money in the long run if there is a conflict over what was agreed upon.

What if you made an oral agreement that was not witnessed by anyone else? If you immediately took action on your half of the deal, it can be convincing evidence of the contract. Additional proof is if the other party began acting in compliance with its obligations under the agreement.
No matter what, you will want to keep copies of any correspondence between you and the other party that strengthen a potential claim. This includes emails, letters, receipts or any other documentation that establishes an agreement was reached between you and the other party.

Of course, there is no way of knowing if you will be able to prove the oral agreement was made, so there is always an inherent risk. In order to prevent any uncertainty, get the agreement in writing. Even if you believe it is a simple deal and there is a slim chance that anyone will have to prove anything in court, having a one-page contract via email is better than nothing. A written agreement doesn’t have to be complex, it just has to be in writing.

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