Tag Archives: Verbal agreement

Contracts

Are Verbal Agreements Valid? Part One: Do you have to pay the Plumber if you don’t sign a Contract?

It is a common misconception that oral contracts are not enforceable. When you think about it, individually and on behalf of our business, we frequently engage in transactions where both parties don’t negotiate all the terms, sign the same document or even exchange forms.

This morning, the pipe under my bathroom sink burst and flooded the entire bathroom floor.

So what did I do? What anyone else would do: I called the plumber, got a general idea of their hourly charges and booked the next available appointment.

Do you think I took the time to negotiate and sign a contract with the plumber before he came to my house? Of course not! I was running out of dry towels, trying to get everything out of the cabinet under the sink, and worried that the water would spill over to our bedroom where we had installed hardwood floors a couple of years ago.

Does that mean we didn’t have a contract with the plumber? Of course we did. He performed the work to fix the pipe and having done so, we were “obligated” to pay for work performed.

And, that’s my point. Contracts can exist in several ways: Verbally, by conduct and in writing.

It is true that certain agreements must be in writing and signed to be enforceable. The statute of frauds requires the following types of agreements be in writing: Transference of real property; Performance which cannot be completed within one year (example a consulting agreement for 2 years); a contract for marriage (you can tell how old this rule of law is!); and the sale of goods of $500 or more..

Importantly, the statute of frauds section of Article 2 of the Uniform Commercial Code (UCC) – which applies to contracts for the purchase/ sale of goods – -provides some exceptions. A contract that might otherwise be unenforceable because it is not in a writing signed by both parties may be enforced IF :

  • One merchant sends a writing to the other merchant memoralizing the verbal deal, and if the recipient does not object in writing within 10 days of receipt, it will be binding on the recipient. This can take the form of an email or a purchase order from the buyer to the seller (NOTE: that this is a frequently used method of doing business); and
  • There is not writing but one merchant has begun work. Note that this frequently happens before purchasing, contracts or legal finds out about it!

So, if the parties have entered an oral agreement, or if negotiations have started but the contract has not been finalized, and in either case, work has begun and a dispute arises, what legal rights and obligations does your company have?

In other words, if there is no signed, written contract, is the performing party totally without any legal recourse in the event of a dispute?

The answer is most frequently “NO” for one of two reasons:

  1. A signed, written contract can be found based on the exchange of emails and other written communications between the parties and even internally. The contract does not have to take the form of one document containing both parties’ signatures. In these frequent situations, the question is not “Is there a contract”? The question becomes “What are the terms of the contract”? i.e., What have the parties agreed upon in those exchanges? Where the parties have not expressly agreed to the terms, the UCC and general contract law will “fill in the gaps”.
  1. If a court determines that the parties did not have a contract, most, if not all states, recognize the legal doctrine of quantum meruit – -also called unjust enrichment or quasi-contract. Quantum meruit allows a court to award money to a party who has provided goods or services to someone else even though those parties never had a contract. In fact, a court can use quantum meruit to provide relief only when no legal contract is found to exist between the parties.

The bottom line is this: Once the supplier has performed work/ delivered goods – even if directed to do so by an unauthorized agent of the purchasing company – courts will often find a way to compensate the supplier for work performed or goods delivered.

We all know that the justifications our internal customers use for proceeding this way is that they want to get the deal done quickly and don’t have the time to get us involved.

I believe the basic issues within our organizations are how we, in purchasing, contracts and legal, can become involved earlier in the contracting process and how to get our internal customers thinking of global company issues and not only those affecting their department.

In the next blog, I’ll discuss the most typical reasons our companies are involved in these situations. I’ll also provide some suggestions on encouraging your internal customer to seek your involvement and input in the early stages.

To avoid the uncertainty of an oral agreement and assist in expediting the contracting process, let Leslie S. Marell help you. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

Buyer, Seller

Verbal Agreements to Buy/Sell Goods – Are They Enforceable?

Are verbal agreements to buy/sell goods real agreements?  In other words, are they enforceable?

If your company is involved with buying goods from suppliers or vendors, or selling goods to customers, you no doubt have many standard forms and agreements prepared by your corporate attorney, or at least standard operating procedures for contracting.  However, occasionally a customer or supplier will ask for something verbally—a last minute rush order, a missing part, a ‘handshake’ deal, and you might verbally agree to it on behalf of your company.  The question is whether or not this “agreement” is legally binding.

Generally speaking, any promise to buy goods (meaning anything tangible, including material, equipment, product and even off the shelf software) from a supplier, or sell goods to a customer in an amount over $500 is NOT legally finding.  The Uniform Commercial Code (U.C.C.) requires all contracts for the sale of goods (not services) must be in writing if they are over $500.  However, there are some notable exceptions to this rule:

  1. Merchant exception: This is the most significant exception applicable to businesses. If the verbal agreement is between merchants (two businesses), and one of the merchants confirms the deal in writing, that writing will be binding on the recipient merchant even if the recipient merchant does not countersign their acceptance….unless the recipient objects to that writing within ten days of receipt. In other words: if you confirm your agreement via email to your supplier (or customer) that document will fit within this exception.
  2. Where the supplier has already started performance, and the goods are being manufactured specifically for the purchaser.
  3. Where the supplier has partially or fully completed performance.
  4. Where the buyer admits in court testimony or legal pleadings that he or she made a verbal contract.
  5. Where the supplier had relied on the verbal promise to his or her own detriment.

Of course, it is always best to get things in writing! Where the supplier can demonstrate one of the exceptions, it has an argument that the verbal agreement is a binding contract.

If your company needs assistance with developing vendor or customer contracts, or has other contracting questions, attorney Leslie S. Marell can help.  Leslie has more than 25 years of experience as in-house counsel and as a legal adviser working with businesses, business people, and business contracts, in the technology, manufacturing, software, and medical device industries.  She understands the real-world practicalities of what it takes to draft, review, and negotiate corporate contracts, and has presented her dynamic seminars to Fortune 500 companies and small to mid-sized businesses across the country.  Leslie specializes in helping contract analysts, project managers, and department leaders work better with their own internal legal departments and outside counsel.  To learn more about Leslie’s seminars, or get expert advice on contracting matters, contact Leslie at (310) 372-8663, or visit her online.