Originally published at NJEntrepreneur.com.
In this fast paced world of doing business, parties sometimes disregard the formalities of a written contract, and conduct business with a handshake, or oral contract. Generally, these oral contracts are enforceable, however, there are many pitfalls associated with entering into one. Some basic issues surrounding an oral contract are:
- Contract Formation. For a contract to exist, whether oral or written, there are a number of basic elements that need to be present. The parties must show that there was an offer and acceptance, the terms of the payment, each party has the mental capacity to enter into the contract, the contract contains certain terms related to the subject matter, price and delivery under the contract, and the parties have the same understanding regarding the particulars of the contract. The more complicated the contract becomes, the more likely that a key element will be missing. While the parties may make an effort to include all the key elements of a contract, sometimes a handshake is just not enough to cover all of the key elements.
- Proving the Contract. Oral contracts can be hard to prove because usually there is lack of hard evidence to the existence of the oral contract. To overcome this burden, a party can prove the existence of an oral contract by commencing performance, taking possession of the goods, or producing a purchase order or check to show payment for the goods or services. There are many ways to prove the existence of a handshake contract, even if you don’t have a picture of the handshake. Proving an oral contract without sufficient evidence will be very difficult to prove.
- Missing Contract Elements. A contract forged by a handshake may be enforceable, however many times the parties either misinterpret or misunderstand the other party’s intentions to the contract. A handshake can not clearly define the expectations of both parties, many times one party has different expectations regarding the subject matter of the contract or the obligations of the other party. If there is a mutual misunderstanding regarding the basic premise of the contract, the courts may hold the contract unenforceable. Furthermore, oral contracts may also fail because they are missing some necessary terms, which are, price of the goods or services, description of the subject matter of the contract, when delivery will occur, and when payment will occur. If an oral contract is missing any of these essential terms, then a court may not enforce the oral contract.
Many times clients enter into handshake contracts, or oral contracts, because they are too busy to write down the agreement, the other party may not want to put the agreement into a writing, they think the deal is too complicated to write down or they don’t want to give the other party the opportunity to back away from the deal. To avoid a legal battle regarding an oral contract, you should get it in writing!