Many people probably already know that two or more parties can have a contract without writing anything down. For example, you see a “For Sale” advertisement on Craigslist for a $400 bike. You reach out to the seller and arrange to meet up and take a look at the bike. As soon as you look at the bike, you know you have to have it. So, you ask the seller if he'll take $300 for it, he agrees, you shake hands, and you head to the store to get cash from an ATM. You tell the seller to hang on for twenty minutes so you can retrieve the cash and come back to pay for the bike. He agrees.

Is this a contract? Probably so. After all, the basic requirements of a contract are simple: an offer is made, which you accept, and both parties understand the deal and agree to some sort of exchange (e.g., money in exchange for a product or service). In the example above, the seller and buyer agreed to exchange the bike for $300. However, what if you come back with the money after twenty minutes, and the seller tells you he sold the bike to someone else? Is there a breach of contract? Probably. But, will your breach of contract lawsuit be successful? It depends on what the law says about this type of transaction, what you can prove, and what defenses the other person can prove.

While writing a contract for a Craigslist purchase would probably be seen as ridiculous, we recommend it for most transactions. Certain laws—commonly referred to as “statutes of frauds”—already require a written contract in many scenarios, such as real estate transfers, certain leases, certain debt and credit agreements, contracts related to marriage, expensive goods, and contracts that take over a year to perform.[1]

All too often, consumers call us and ask how to proceed against a service professional, such as a construction professional, when the work wasn't performed to expectation. But, when asked for the contract, we find out there was no contract. The parties agreed that the contractor would install oak hardwood flooring, but each party interpreted this differently, and the oral service estimate was not clear to the consumer. While the consumer thought the scope of work agreed upon was to “install hardwood floors,” the contractor thought the parties agreed to install the most cost effective, sustainable/engineered hardwood flooring.

We also receive these calls from small businesses. Disputes with customers over what was agreed upon lead to too many rebates, refunds, or service calls, which causes the business to lose profit on the job, and in some cases, receive angry or negative online reviews.

Often, in verbal contracts, small details that make a big difference may be lost in translation. The resulting disputes, which can lead to business and commercial litigation—breach of contract, warranty, mechanics liens, construction defect, or other consumer protection litigation—may have been avoidable had there been a clearly written contract in place. And, if the dispute does lead to litigation, the clearly written contract can protect you by avoiding the “he said, she said” battle. If you are entering into commercial relationships or conducting business without written contracts, you may be in dangerous territory.

Litigation is costly. In business, risk mitigation and reputation maintenance are vital to success. Having a skilled attorney review, revise, and craft new contracts for your small business right now can pay dividends in the long run by reducing the likelihood of litigation based on misunderstandings with your customers. Whether you want to have a contract reviewed or drafted, or you need representation in a lawsuit involving a contract, Contact Us Today for a free consultation.

DISCLAIMER

The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.

[1] For details on these laws, see C.R.S. §§ 38-10-112, 38-10-108, 38-10-124, 4-2-201, & 4-2.5-201.