Oral vs. Written Contracts

Oral vs. Written Contracts

By DeAnn Chase October 19, 2018    Category: Business Law    

Oral vs. Written Contracts

Contracts form the foundation of all business. A business uses contracts to form a relationship with its suppliers, contractors, customers, and employees, which act as an assurance that what it has asked for will be completed and that products purchased will arrive in time and perform as advertised. A contract is fundamentally an agreement between two or more parties that’s legally enforceable. However, a contract does not have to be written in order for it to be enforceable by law.

Contract Basics

In order to create a valid and enforceable contract, there must first be a mutually recognized offer, clear acceptance of that offer by someone capable of accepting the agreement, and consideration. Consideration is the bargained-for exchange of something of value, this looks different depending upon the circumstances of the agreement. The most widely understood exchange is the purchase of a good or service, for example purchasing your morning coffee requires you to give your money in exchange for the coffee shop providing you with your coffee. Agreements that lack consideration may result in the good or service being deemed a gift. Regardless of whether the agreement is memorialized in writing or created orally, a contract needs all of these pieces to form an enforceable agreement.

Oral Contracts

Occasionally, contracts are created during the course of a conversation. During these hurried exchanges, terms are agreed to but no one stops to write the agreement, instead they are begin working on executing their part of the agreement. This type of agreement happens frequently in the business world. It’s important to note that a contract isn’t invalidated merely because it isn’t memorialized in writing.

For example, if you agree to purchase new equipment for your business which is then delivered in accordance with your oral agreement, you are obligated to pay for it. This can quickly become a complicated, especially if the equipment you received isn’t as expected, where you’re making a series of payments over a period of time, or you change your mind about the terms you agreed to. Indeed, making changes to an agreement is far easier where the agreement is written down, especially if you’ve had a lawyer involved to help work through the details in writing, and advised you to consider what happens if the situation changes and you want to terminate or alter the agreement.

Written Contracts

A written contract doesn’t have to be a complex document with dozens of pages drafted with the help of your attorney to be enforceable. Many straightforward purchase agreements used by businesses to conduct their day-to-day business are valid and enforceable. However, businesses should be careful as most of these agreements lack the terms to help the parties handle unexpected circumstances by amending the terms.

As business is conducted almost entirely through contracts, it is unlikely that every agreement you entered into will be perfectly detailed with all terms documented. However, there are a few key steps you can take to protect your business and certain situations where it would be particularly wise to have a more formal agreement.

First, any time you enter into an oral agreement, make sure to follow up with an email stating what you understood was discussed. This documents the agreement when it’s fresh on your mind and, most likely, the other party will respond back telling you that sounds good, which gives you may be able to use as evidence of the terms of your agreement in the event that an issue arises.

Any time you’re bringing in a new employee, purchasing costly pieces of equipment, new software programs, entering into a new relationship with a supplier, or contemplating a significant amount of custom work for one of your clients, you will want a contract that clearly documents the terms of the arrangement. Many of these contracts will be templates that you can use repeatedly throughout the course of your business, because of this it’s important that your templates are customized so that they are tailored to your business needs and preferences. Having tailored agreements that work with how you choose to conduct your day-to-day business are worth their initial upfront costs as they can save you significant headache – and potentially significant costs – over the lifetime of your business.

Chase Law Group, P.C. helps our clients design a set of company contracts that consider the specifics of their business, and current California and federal law. Our experienced business attorneys can also help you when complex situations or contract negotiations arise. Schedule a consultation by calling (310) 545-7700 today.