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Tuesday, June 16, 2009

The Importance of Having a Written Contract

A common problem that we encounter at Gross & Romanick is the client who wishes to enforce an agreement that was not put into a writing signed by all parties. Even an exchange of e-mails or written proposals without a signature does not necessarily create a binding contract. While some oral agreements are enforceable, it can be extremely difficult to prove the existence of an oral contract and its terms. To be enforceable, an oral contract requires: (a) a meeting of the minds, (b) definite terms, and (c) a pattern of adherence to those terms. More often than not, the existence of an oral contract boils down to a “he said-she said” debate, which can make enforceability very uncertain.

In addition, under the Statute of Frauds in Virginia, some oral contracts are never enforceable. These include, but are not limited to:


    Agreements to pay the debts of others;
    Agreements for the sale of real estate;
    Agreements to lease real estate for more than 1 year;
    Agreements that cannot be performed within 1 year; and
    Agreements to lend or extend money in an aggregate amount above $25,000.

It is always better to put an agreement into writing, signed by the parties. Doing so eliminates the “existence of a contract” issue, the Statute of Frauds issue, and the argument over what the terms of the agreement were. Also, having a written agreement increases the likelihood that the parties to the agreement will actually acknowledge and abide by the deal. In Virginia, you also have a longer time period to enforce a written contract following a breach (5 years for written contract versus 3 years for oral contracts).

Too many people fail to create a written agreement. This is especially true when the agreement involves friends and family, because it seems to imply lack of trust. In fact, a written agreement is good for all parties because it explains the actual terms of the contract, which understanding may differ among the parties if there is no writing. The only party that benefits from an oral agreement is the party breaching the contract. In our legal experience, it is alarming how often a party to an oral agreement will simply lie about the agreement when the other party seeks to enforce it. Do not take this risk!