Is A Business Verbal Agreement Enforceable?

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Is A Business Verbal Agreement EnforceableWhen you reach an agreement but don’t reduce it to writing, it’s commonly known as a “gentleman’s agreement.” This type of handshake deal occurs all of the time. But is a verbal agreement enforceable as if it were a written contract?

Like many areas of law, the answer is “it depends.” And often it’s a fact-specific inquiry.

Statute of Frauds

Certain types of contracts are required to be in writing by the statute of frauds and other law. For example, a real estate sales contract.

Related Resource: Free Business Contracts Management Spreadsheet

The writing requirement is designed to prevent fraud and reduce the likelihood that you’ll end up in court in an expensive protracted lawsuit based on fading memories of who agreed to what in an alleged verbal agreement.

Promissory Estoppel And Detrimental Reliance

There are ways to enforce a verbal contract if you can prove certain things. For example, under the concept of promissory estoppel, if you can show you relied to your detriment on the other party’s promise, you may be able to enforce an oral contract.

How does that work?

Let’s say you verbally agreed to buy a company car. Your business paid for the vehicle but the seller refuses to give you the car keys or transfer the title to your company. Detrimental reliance could be shown by evidence your business paid the seller.

Related Article: Is Your Business Using Legally Binding Contracts?

Or you accepted a verbal offer of employment from Apple, shut down your startup, sold your home, and moved across the country at your own expense to start the new job. However, upon arrival, the business that made you the oral employment offer changes its mind and you’re now unemployed. You can show detrimental reliance with evidence you shut down your business, relocated, etc. based on the promise of new employment.

Course Of Dealing Can Make A Verbal Agreement Enforceable

Repetitive behavior in business deals with the other party, known as “course of dealing,” can be used in some instances to make a verbal contract enforceable.

Let’s say you’ve been supplying the other party with 10,000 widgets per month based on a handshake deal you made two years ago. Agreed upon Net 30 payment terms have always been met. Yet the other party suddenly decides Net 180 are the new payment terms and will only buy 5,000 widgets per month at a price that wipes out your profit. Your course of dealing can be evidence used to enforce the gentleman’s agreement.

How To Prevent This Problem In The First Place

If you’re trying to make a verbal agreement enforceable, chances are you’re either heading to court or alternative dispute resolution (mediation, arbitration, etc.). That costs you a lot in time and money even if you have the evidence you need to prove your case.

The solution is to use professionally prepared written business contracts. As Dallas Business Lawyer Mike Young likes to point out, Benjamin Franklin was right when he said that an ounce of prevention is worth a pound of cure.

If you need a written business agreement, check out our firm’s Business Contracts Legal Protection Package.

Business Contracts: Why You Should Avoid Email Deals

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Business Contracts: Why You Should Avoid Email DealsHow do you enter into business contracts? If you lived a couple hundred years ago, chances are you’d reach an important business agreement by spitting in your palm and shaking hands with the other person.

By the 20th Century, that evolved into a simple handshake “Gentleman’s Agreement.” No spitting.

Today, many business deals are made by an exchange of emails, i.e. a virtual handshake.

What’s the problem with that?

The Dangers of Email Deals as Business Contracts

The spitting starts when something goes wrong during performance.

You and the other party argue over what’s in the chain of messages back and forth. In other words, you both have very different ideas on what those emails meant. Were they negotiations or did you agree to specific terms?

At a minimum, it’s a loss of time. Too often, it’s a lawsuit and the end of what had been a good relationship.

And if you signed any of those emails as an individual (rather than on behalf of your company), you might find yourself personally on the hook if you lose in court.

A Simple Solution

Many of our clients have found the easiest way to prevent this mess is to systematize their business deals using a professionally prepared written contract designed to protect themselves and their businesses.

We typically prepare a contract for a flat fee — check out our Business Contract Legal Protection Package — and the client uses it over and over again.

For example, if you repeatedly buy or sell a particular service/product, it makes sense to have an experienced business lawyer prepared a customized written “standard agreement” you’ll use as the basis for your deals.

Gentleman’s Agreement: How to Avoid Getting Screwed

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gentleman's agreementWhether by handshake or an email that says “It’s a deal,” business owners often get into legal trouble because of a gentleman’s agreement (a.k.a. gentlemen’s agreement).

What is a Gentleman’s Agreement?

A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.” – Sir Harry Vaisey

Despite Judge Vaisey’s cynical description of such an agreement, most informal deals are entered into in good faith between small business owners who want to get things done without the time and cost of retaining a qualified business lawyer to paper the deal as a legally binding contract.

Related Article: Can A Job Interview Form A Verbal Employment Agreement?

Donald Trump and the Art of the Handshake Deal

If you’ve read “The Art of the Deal” by Donald Trump or “Trump-Style Negotiation” by The Trump Organization’s senior legal counsel, George H. Ross, you’ll know that Trump will often shake hands on a verbal gentlemen’s agreement with another party.

However, Trump will then turn the deal over to Ross or another business lawyer to draft the contract that reflected the terms agreed to between the parties.

Words Have Different Meanings

So what’s wrong with just getting things done without a written contract in place?

Spoken words often have a different meaning to the listener than to the speaker. For example, if you’re buying a shipment of smart phones and tell the supplier that you need them a.s.a.p., you might mean delivery next week. However, the seller could interpret “as soon as possible” to be three months from now when he gets his next shipment from China.

Memories Fade

As pointed out by successful entrepreneur and author Harvey Mackay, “[p]ale ink is better than the most retentive memory.”

Unless the verbal agreement is performed within the space of a few hours, memories of what was agreed to will fade. That leads to misunderstandings and frequently lawsuits alleging breach of contract, bad faith, fraud, etc.

Honesty and the Verbal Agreement

Some contend that if both parties are honest, then there’s really no need for a written agreement because they’ll each endeavor to do what’s right.

Yet how can you tell? When it comes to deciding whether to enter into an oral B2B contract, there’s no acid test for honesty.

Better to get it in writing so there are remedies in place if the other party turns out to be a crook and a liar.

Preventing Misunderstanding of Your Gentlemen’s Agreement

Benjamin Franklin was right when he said that an ounce of prevention was worth a pound of cure. This is particularly true when preventing an expensive lawsuit or a bad business deal by taking a little time to get an oral gentleman’s agreement converted to a writing signed by the parties.

Related Article: How To Pick The Right Internet Lawyer For Your Business

According to Internet Lawyer Mike Young, you can protect yourself by having a qualified attorney prepare a written contract that accurately reflects the gentleman’s agreement both parties verbally agreed to with regard to price, quantity, time, location of performance, and dispute resolution.

Related Resource: Business Contract Legal Protection Package

5 B2B Contract Mistakes That Can Bankrupt You

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B2B contract mistakesDid you know that if you’re sued in a B2B contract dispute, you should plan on spending at least $100,000 in legal fees?

And a lot more if the other side is a large company with resources to drive you into the ground through litigation and appeals of trial court decisions.

What about commercial liability insurance? That’s fine if your policy covers the claims and your insurer decides to pay for your defense. Want to gamble your company’s future on either?

With costs like these, even if you win, you lose. And if the court rules against you, imagine how much you’re likely to pay in damages.

Although there are no fool-proof methods to prevent this from happening when it comes to B2B contracts, here are five mistakes you can easily avoid in order to reduce the risk of ending up in a lawsuit that leads to bankruptcy.

Mistake #1 – Doing Business with Someone You Don’t Trust

The top mistake entrepreneurs make is doing deals with someone who is dishonest. If your gut tells you there’s something wrong, even if you can’t exactly identify why, walk away from a proposed deal. Trust your instincts when you start doubting the other side’s honesty. There’s a reason for that distrust even you can’t explain it.

Related Article: Business Contracts – 5 Mistakes To Avoid As An Entrepreneur

Remember that there are truly no must-do deals. You can walk away and get what you want from another party who you do trust.

Mistake #2 – Verbal Agreements

“A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.” – English Justice Harry Vaisey

Particularly in ecommerce, parties agree orally to a business deal for sake of speed and convenience. After all, it takes time to negotiate and put a deal in a legally binding written B2B contract.

Another reason that verbal contracts occur is that one party appeals to the other through flattery. There will be references to being a “good Christian” (or other religion), a self-described “expert” who doesn’t need to stoop to having written contracts, and/or person of integrity (you’re an honorable person, aren’t you?). The implication is that you’re a bad Christian, an amateur, or a person who lacks integrity if you insist on getting the deal reduced to writing.

It’s also effective for scoundrels to play the “wounded bird” card. They act personally insulted if you insist upon a written agreement. “Don’t you trust me,” they ask with a hurt look on their face. If you want to do a deal with such a person (see Mistake #1 above), your response should be “I trust you and I still want our deal as a written B2B contract to prevent misunderstandings between us as we do business.”

Mistake #3 – Avoiding Titles

To protect yourself from personal liability in your business transactions, chances are you’ve had your business contracts lawyer set up a corporation or limited liability company (LLC) to shield you from many potential legal dangers.

Yet it’s very common for entrepreneurs to mistakenly sign a business agreement with just their names without making it clear that the document is being signed as the President, Managing Member, or other authorized representative on behalf of the business entity.

Related Article: Breach of Contract – 5 Steps To Avoiding A Costly Lawsuit

This can lead to situations where you’re sued personally in a business dispute so that the other side can go after your personal assets (home, bank accounts, vehicles etc.) in addition to business assets.

Mistake #4 – Winging It With A B2B Contract

Even if you’ve got a good written business contract in place, it’s common to ignore what’s actually in the contract and informally adjust your performance of the business deal as circumstances change.

When one or both parties to an agreement are winging it when performing their obligations, invariably disputes arise that lead to bad feelings at a minimum and often expensive lawsuits.

If circumstances change, or you can’t perform as promised in the contract, negotiate a written amendment to the original agreement, or a written termination of the contract on terms that let you walk away without looking over your shoulder for retaliation by the other party.

Mistake #5 – Pretending to be a Business Lawyer

If you’re not a dentist, do you fill cavities in your own teeth?

Not a neurosurgeon? Do you perform brain surgery on yourself?

This may seem silly but if you’re not an experienced business lawyer, why are you trying to draft your own contracts? The damage you will inflict is far worse than any benefit of do-it-yourself lawyering.

Plan to “borrow” your competitor’s contract to use in your business? How do you know the agreement is any good or fits your unique needs?

Even if there is a good fit, who owns the copyright for the contract?

Are you planning to infringe upon the copyright for a legal document owned by someone else (often a lawyer or a law firm) and face up to $150,000 in damages and attorney’s fees per infringement if/when you’re caught pirating the agreement?

Invest in getting the right legal protections in place for your venture, including written business contracts prepared by a qualified legal professional. If you’re doing an ecommerce deal, retain an experienced Internet lawyer. Don’t end up in bankruptcy by taking shortcuts pretending to be something you’re not.

If you need a B2B contract or want your agreements reviewed by an experienced professional, set up a telephone consultation with Business Lawyer Mike Young.