Technically, most verbal agreements are in fact legally binding. Practically speaking, the problems come if or when you ever need to prove exactly what you and another party agreed to.
While written agreements spell out all the terms and conditions, and attest to each parties’ approval through signatures, verbal agreements are much more open to interpretation.
If you do need to take legal action to enforce the terms of a verbal agreement, you’re going to need more than “your word against theirs.” Courts in these cases are likely to look to what both parties have done in the past, called “course-of-dealing” or “course-of-performance,” or what’s customary in a particular type of business, trade, or region, called “trade usage.” Witnesses to the agreement can also help courts determine the terms of the agreement.
Verbal agreements can be binding for many situations. Notable exceptions may include lease agreements that extend beyond one year, certain real estate transactions, and the sale of goods over $500 between individuals. These agreements may be void under the “Statute of Frauds” because they are the type of transactions involving fairly serious agreements that courts are reluctant to enforce without a writing. The rules regarding verbal agreements also differ depending on whether the parties are merchants or simply individuals.
Your safest bet is to get all agreements in writing. If you make a handshake deal, follow it up with written communication stating the terms and requesting the other party advise you if they have a different understanding.
Courts historically look to written contracts to resolve disputes. They view written contracts as providing individual freedom for people to conduct business the way they choose. They are reluctant to force people into something to which they didn’t originally agree. Written contracts are their insurance — and yours — that your intentions are upheld.
Article by Justin Peterson, business attorney at Johns, Flaherty & Collins, SC. For a business lawyer in La Crosse WI, call him at 608-784-5678.