As a business owner, contracts are an essential part of your business relationships. Not only do they make working with clients much simpler (for both parties), they're also the way you can protect yourself and clients if any disputes should arise. And while written contracts are likely not a new idea for you, did you know that some verbal contracts can be legally binding? In this blog we’re talking about what makes a verbal agreement enforceable and how you can protect yourself as a business owner.
What Makes a Verbal Contract Enforceable
A verbal agreement can be legally binding as long as it contains the essential elements of a contract - an offer, acceptance of that offer, and consideration. Consideration is simply something of value exchanged in the contract. For business owners this most commonly consists of trading money for a good or service.
While some types of contracts must be in writing (i.e. land sales or a sale of goods exceeding 500USD), generally a verbal agreement is legal if it has the same core parts as a written contract. However, we will ALWAYS advise that every contract in your business be written.
Where Verbal Contracts Get Complicated
Although many verbal agreements are enforceable, they’re not an ideal way to protect yourself, your business, or your clients from potential disputes. For one thing, they can be very challenging to prove. While you can gather other resources such as text and email communications or even the testimony of a witness if you had one, it’s still way more challenging (and expensive) to prove the details of the agreement.
Additionally, they’re not as clear as a written contract. With a written agreement, both parties have copies of the same document which is incredibly helpful for removing any misunderstandings about the terms of the agreement. A written contract has far fewer gray areas. Both parties have clear boundaries and a written document to reference should issues arise.
Overall, while you can enter into legally binding verbal agreements, it’s never advised to do so as a business practice. Written agreements are a much simpler and safer way to protect both parties. They also prevent “accidental” verbal contracts with terms you never really meant to agree to!
Not sure if your written contracts are up to par? We would love to help you! We can create contracts for you from scratch, and we can review and revise agreements received from other parties. Get in touch with our team and get your contracts in order!