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!

BUSINESS BROKER MISUSES ESCROW MONEY

Gross & Romanick, P.C. was recently retained by an individual who attempted to purchase a business through a “business broker” intermediary without the advice of legal counsel. The new client paid a substantial sum of money to the broker to hold in escrow until the buy-sell agreement closed. When the deal fell through, the broker refused to refund the escrow money. Eventually the broker confessed to the client that the money was spent and no longer in the broker’s account. Gross & Romanick, P.C. is now seeking a judgment against the broker through a lawsuit in the Virginia Court system. Gross & Romanick, P.C. learned that the broker was not licensed to transact business in Virginia as an escrow agent or otherwise. Although the client will likely prevail in Court and will obtain a judgment against the broker, he has been deprived of his escrow money for a significant period of time and there is always the risk that the judgment will be un-collectable.

The facts of this case illustrate how important it is that when negotiating for the purchase or sale of a business you have legal counsel review any documents related to the sale, and that due diligence is conducted to investigate any parties receiving commissions under the sale to ensure that they are legitimate business entities. Failure to do so can lead to detrimental results if the sale/purchase does not consummate.

Since 1980 Edward Gross of Gross & Romanick, P.C. has been negotiating and settling the sales/purchases of businesses. The experienced business law attorneys at Gross & Romanick, P.C. are more than willing to assist you and your business with any matter relating to the sale or purchase of a business.