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:
- 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.
- Where the supplier has already started performance, and the goods are being manufactured specifically for the purchaser.
- Where the supplier has partially or fully completed performance.
- Where the buyer admits in court testimony or legal pleadings that he or she made a verbal contract.
- 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.