In business, agreements happen every day—between partners, vendors, employees, and clients. While verbal agreements in business may seem like a quick and easy way to finalize deals, they come with significant risks. Unlike written contracts, verbal agreements often lead to misunderstandings, legal disputes, and financial losses. Understanding the dangers of unwritten agreements can help businesses protect themselves from unnecessary risks.
Are Verbal Agreements Legally Binding?
In many cases, verbal agreements can be legally binding. However, proving the existence and terms of a verbal agreement is often challenging.
Under the Statute of Frauds, certain contracts must be in writing to be enforceable, including:
- Contracts for the sale of real estate.
- Agreements that cannot be completed within one year.
- Sales of goods over $500 (per the Uniform Commercial Code – UCC).
- Promises to pay another person’s debt.
Even when verbal agreements do not fall under the Statute of Frauds, enforcing them can be difficult due to lack of tangible proof.
The Hidden Risks of Verbal Agreements
1. Lack of Clear Terms and Conditions
- Without a written contract, terms can be misinterpreted or forgotten.
- Disputes often arise over obligations, deadlines, and payments.
2. Difficulty in Proving Agreement Terms
- Unlike written contracts, verbal agreements rely on memory and trust.
- If a dispute arises, courts may require substantial evidence to enforce the agreement.
3. Increased Legal Disputes
- Disagreements are common when there is no documented contract.
- Legal proceedings over verbal agreements can be costly and time-consuming.
4. Unenforceability of Certain Agreements
- Some contracts must be in writing to be valid under the Statute of Frauds.
- If one party denies the agreement, proving it legally can be an uphill battle.
5. Limited Protection for Both Parties
- Written contracts include clauses for dispute resolution, confidentiality, and liability protection.
- Verbal agreements lack these protections, increasing business risk.
How to Protect Your Business
1. Always Use Written Contracts
- Draft a written agreement for any business deal, no matter how small.
- Ensure all terms, conditions, and obligations are clearly stated.
2. Get Confirmation in Writing
- If an agreement starts verbally, follow up with an email summarizing key points.
- Request acknowledgment from the other party to confirm their agreement.
3. Use Digital Signatures and Contracts
- Digital contract platforms like DocuSign provide secure, legally binding agreements.
- Electronic records help prove contract terms in case of disputes.
4. Consult a Business Attorney
- Have legal counsel draft and review contracts before signing.
- An attorney can ensure contracts comply with state laws and protect business interests.
5. Keep Detailed Records
- Maintain written records of all business communications and agreements.
- Documentation can be used as evidence if a dispute arises.
Conclusion
While verbal agreements in business may seem convenient, they are fraught with risks. The lack of clear terms, difficulty in enforcement, and potential for disputes make them a poor choice for conducting business deals. To safeguard your business, always opt for written contracts, document key discussions, and seek legal advice when necessary. If you need assistance drafting or reviewing contracts, contact Tishkoff PLC for expert guidance.