Business owners have contact with colleagues, vendors, customers, and contractors on a daily basis in the course of doing business. Often, a business conversation might include creating or firming up a deal between the two parties. But is a verbal contract enforceable by law? In the state of Pennsylvania, verbal agreements need to include these basic requirements to be valid.
This is when a person, business, or entity promises to do (or not to do) a certain action in the future.
When the other party agrees to the offer. The acceptance must mirror the terms of the offer presented for the acceptance to be valid.
Something of value is agreed to be given in exchange for the terms specified in the offer. Most instances this might be a product or service in exchange for money, but verbal contracts can include product or service trades or bartering. Whatever is exchanged must be reasonable, and both parties must have something to exchange (unilateral contracts are unenforceable because only one party has responsibility). As an example, the promise of a gift generally is not enforceable.
Depending upon the nature of the verbal agreement, certain terms would be considered essential by the court, such as a stated price in exchange for goods, or a specified amount of work for a set price. An agreement missing essential terms generally is not enforceable.
Meeting of the Minds
After the first steps, those involved in the agreement understand and affirm the basic terms of the contract. In a verbal contract this might end with a handshake to “seal the deal”.
But, there are exceptions…
Nearly every state in the US has laws requiring that certain contracts be in written form in order to be enforceable. This is documented under the Statute of Frauds. In the state of Pennsylvania, the following types of agreements must be in writing:
- Real estate purchase or land transfer
- A lease lasting one year or more
- Debt remediation
- Sales of goods for $500 or more
- Personal property sales that exceed $5,000
- Leases of goods that exceed $1,000
- Home improvement and construction contracts
While verbal contracts can be valid, the clear downside to using them is that they are difficult to enforce when a dispute arises. Memories fade and recollections differ, and it can be difficult to prove whose version of the story is the true one. Unless you have some kind of written details such as a text message or email, or the testimony of a third party, your verbal agreement becomes a case of he said, she said.
At Company Counsel we want to keep business owners safe when entering a business deal through written contracts. Call us at 484-325-5660 to set up a consultation. Learn more about us at www.companycounsel.law.