I have a client who is just starting a new apparel business. She hired a designer friend to design fabric prints for her line. She asked me if an oral agreement is valid and sufficient with her friend. People ask me this question a lot! My answer is consistently a resounding “No!”. I’ve seen clients lose a lot of money and at times their business because they didn’t have written contracts.
Courts in New York may still accept some types of oral contracts, as long as they have all the elements of a contract – offer, acceptance and consideration – they are valid. While they may be valid, they may not always be sufficient. I have seen some sophisticated business people get burned because they entered into business relationships with family members or friends and didn’t bother to have written contracts because they trusted the family member or friend. An oral agreement may be fine if you agree to drop off each other’s kids to school, but more often than not, business relationships turn sour and you end up losing not only business and money but also personal relationships.
While courts may accept oral contracts, proving one’s side of the contract in a dispute gets extremely difficult. Contracts set forth the understanding and obligations between the parties. The purpose of written contracts is that the parties are reminded of their obligations and can refer to the written document if a dispute arises. It is used as evidence in court so the judge can determine if the parties held up their end of the bargain in a transaction.
Disputes arise when one party has performed its obligations, but the other has either failed to perform or has only partially fulfilled its obligations and has failed to comply fully. Had only an oral agreement existed between them, the judge or jury would then only have evidence in the form of he said / she said testimony. Such situations get tricky and do not always result in a fair outcome. There is no document for the judge or the jury to rely on or interpret the true intention of the contract and understanding between the parties. It is for this enforcement purpose that you should have a written contract.
Some types of business contracts are not enforceable if they are not in writing:
Real estate contracts
An agreement to pay another’s debt
Sale of goods over the amount of $500
A job or project that would take over a year to complete
Sizeable loans or credit extensions
A court will generally not enforce oral contracts if they fall into one of the categories listed above.
Your business is way too important to seal the deal with a verbal exchange and a handshake. If you want to protect your business, get a pen and paper, put it in writing and sign it.
At Nupur Shah Law, we help business owners draft business contracts. Call us at 646-820- 1366 or email us at firstname.lastname@example.org. I am happy to have a complimentary conversation with you on how to secure and/or defend your rights.