Q: Do my contracts need to be in writing?
A: Surprisingly, many oral contracts carry just as much legal weight as written agreements. Unless the law requires a written instrument, oral agreements are legally acceptable. But while most oral contracts work well, it may be a better idea to “get it in writing.”
Some contracts must be written. The most common written requirements cover land transactions, sales of goods for $500 or more, and contracts that will take more than a year to perform. Aside from limited exceptions, courts will not enforce oral agreements for these matters.
This prohibition includes “side agreements” left out of a written contract. Suppose your business signs a two-year lease. You ask the landlord if she will replace the carpeting. The landlord nods, but does not write anything about carpeting in the lease. Without a written term, you will not be able to force the landlord to replace the carpeting. As a general rule, if you are entering into a written contract but the other person is not willing to include a request in the document, then the other person is not willing to act on that request.
While the law recognizes oral contracts for other transaction types, unwritten agreements tend to raise unexpected problems. Imagine doing business with another company under an oral contract. Either party might forget something that is important to the deal, or both parties might interpret the agreement differently. No document can help the parties resolve a dispute. If an oral contract dispute escalates, most of the evidence given in court would be personal testimony. The result depends on your word against theirs, leaving the court or jury to determine who is more believable. Such disputes take time and energy away from your core business mission.
Because of problems proving the terms of an oral agreement, save them for simple understandings. If you make an oral agreement, follow up with an e-mail stating your understanding of the deal. If you make the same type of agreement repeatedly (for example, with customers or vendors), have a lawyer draft a template and show you how to use it. That cost is minor compared to the time and money lost to avoidable disputes.
Stacey Supina is on faculty in the ethics and business law department at the University of St. Thomas Opus College of Business.