Many times, parties enter into informal loan agreements on a simple oral promise to “pay it back.”  Similarly, others will enter into oral agreements to perform residential construction projects, or other types of projects. When things do not go as expected and the promises are of a value worth litigating over (or one of the parties to the promise thinks they are) things can go swiftly downhill.

Contracts

Binding, but there are exceptions

Generally speaking, oral contracts are binding when exchanging goods, services or money. There are certain exceptions, such as oral contracts for the transfer of land or leases longer than one year. Determining the terms of an oral contract can be very unpredictable as judges must rely upon evidence of one person’s word against another—“he said, she said”—supplemented by whatever else can be found as supporting evidence. Consequently, both parties do not have much control over the final result once the dispute ends up in court.

Statute of Limitations is only Three Years

Oral contracts have a statute of limitation of three years compared to five years for a written contract.  Furthermore, when the terms are unwritten, determining what constitutes “default” can be difficult. Having a written contract drafted by an attorney not only protects you, it can potentially protect your business or personal relationship with the other party. If a party to a promise is not willing to have an attorney draft a contract, you may want to reconsider entering into the contract at all.

Terms of Oral Contract are uncertain

Engaging in oral contracts for business purposes is not a wise business practice and should be avoided. For example, assume a painter and homeowner enter into an oral contract to paint the homeowner’s house.  Upon completion, the parties disagree as to the terms of payment, or the extent of work promised, or the quality of the work performed. Regardless, the matter may end in litigation because of the nonspecific terms. At minimum, parties need to be aware of the pitfalls they are about to enter into and factor that in when deciding whether to proceed into the business relationship.

In any situation where items or services of value are being exchanged with a promise, it is best to have your business attorney draft a complete document. Taking this step at a relatively small price can save you money later on.

Tarley Robinson, PLC,  Williamsburg, VA

Attorneys and Counsellors at Law

John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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