dbxweb said:
Are verbal agreements legally binding in Florida?
Such as an employment agreement which was broken?
Are they enforceable in small claims court such
as to recover wages not paid and expenses incurred?
My response:
Yes, but . . .
The Basics Of Contract Law
A contract is an agreement between two or more people to do something, or not to do something, for a valuable "consideration" (usually, but not always, money). It may be written or oral.
Contracts are recognized in virtually all societies. Written contracts are the most common because, as the saying goes, "A verbal contract isn't worth the paper it's written on!" As you will see, that's not always the case.
Oral contracts
Oral agreements or understandings are common: when you pay a toll at a bridge, you have made an oral agreement that could be characterized as a "contract for passage." When you pay your bus fare, you have entered into a contract for safe passage with a common carrier (the bus company).
As a large corporation (Texaco) found out, a handshake agreement to sell natural resources to another large corporation can constitute a legally enforceable agreement. The failure to perform resulted in a judgment awarded by a jury of more than $1 billion, which resulted in Texaco filing for bankruptcy. The "handshake" nearly cost Texaco everything. The case eventually settled for less than that sum. Why no written agreement was needed to enforce one of the largest transactions in history will be studied by law school students for generations to come.
The Texaco case aside, most contracts are in writing because lawyers and laypeople alike know that something in writing is less prone to misunderstanding and easier to refer to and to reflect upon at a later date than oral agreements.
Contracts that must be in writing
In many cases, particularly in commercial real estate transactions, the so-called Statute of Frauds (dating to the 16th century in England) provides that if the contract cannot be completed within a year, or if it is above a certain price (usually $500 under the Uniform Commercial Code), it must be in writing to be enforced.
This doesn't mean an oral agreement doesn't work or isn't binding--it just means that, in many instances, a court can't be used to require the other party to do what he or she promised. Actually, this is typical of what happens in life: some people's word is their bond; others are pathological in their opposition to making good on a promise.
Conversely, just having it in writing doesn't always mean that you're completely protected. In our culture, property is an important concept, and the value of a written contract is held to a high standard, but other cultures may value a written document less. For example, McDonald's signed a 20-year lease for a restaurant to be located in Beijing, China, at Tiananmen Square. Several years into it, the Chinese government decided that it wanted the space for other purposes and simply cancelled the agreement. Not amused, McDonald's tried to have its written agreement honored. The dispute continues to simmer, and the buildings around the fast-food facility--which is the largest in the world--were being torn down even as the parties continued to negotiate.
Get it in writing
All that said, a written document reflecting the understanding of the parties is frequently the best way to proceed. The written document need not be very complicated. A letter written by you and signed by the other party is usually sufficient to create a binding agreement. Just be sure that what is intended is clearly spelled out. Longer, more formal written contracts are normally used for complex transactions, such as lease agreements or contracts to buy or sell a home. Preprinted forms (legal "blanks") are available from stationery stores. They are useful because they cover many common situations, but be aware they may not cover the specifics of your situation. Don't rely on one of these legal blanks to protect you. They may require supplementation or a "rider" to encompass the specifics of your particular transaction.
The benefit of a preprinted agreement is that its provisions are usually well known--at least to lawyers. Expansive written agreements (not printed forms) are also widely utilized, though usually they are prepared by a lawyer and take into account any atypical actions.
The Enforceability Of Oral Contracts
The best practice is to get a contract in writing. The function of a written contract is not only that of proof, but to make very clear the understanding of the parties regarding the agreement and the terms of the contract.
Some small business owners prefer to do business strictly on the basis of a handshake, particularly with their immediate suppliers and retailers. The assumption seems to be that the best business relations are those based upon mutual trust alone. Although there may be some validity to this, business owners nevertheless really should put all oral agreements into writing.
Disadvantages of an oral contract
Under even the best of business relationships it is still possible that one or both parties may forget the terms of an oral agreement. It is also possible that both parties might have quite different perceptions about the precise terms of the agreement reached. When the agreement is put into writing, however, there is much less doubt as to the terms of the arrangement. Thus, a written contract generally functions as a safeguard against subsequent misunderstanding or forgetful minds.
Perhaps the principal problem with oral contracts lies in the fact that they cannot always be proven or enforced. Proof of oral contracts typically centers on the conflicting testimony of the parties involved. If one of the parties is not able to establish by a preponderance of evidence that his or her version of the contract is the correct one, then the oral contract may be considered nonexistent--as though it had never been made. The same result may occur if the parties cannot remember the precise terms of the agreement, and memories do fade.
Contracts that must be in writing
Some types of contracts must be in writing if they are to be legally enforceable. Although the details vary somewhat from state to state, contracts that generally must be in writing to be legally enforceable include:
any contract that by its terms cannot be completed in less than one year,
any contract that involves the sale of goods for over $500, and
any contract that involves the transfer of real estate.
Lawyers sometimes refer to the state law that requires certain contracts be in writing as the Statute of Frauds, the 1677 English law from which today's state laws derive. The Statute of Frauds, as its name suggests, was designed to prevent fraud and perjury. The Uniform Commercial Code (UCC), which governs the sale of goods, also requires that contracts for the sale of goods for over $500 be in writing. Every state except Louisiana has adopted the UCC in some form.
Contracts that cannot be fully performed within one year
Generally, any contract that by its terms cannot be fully performed within one year must be in writing. This rule is narrowly interpreted, so if there is any possibility, no matter how remote, that the contract could be fully performed within one year, the contract need not be reduced to writing.
Example: If a jeweler agreed to submit one piece of custom-designed jewelry to a customer each year for a period of five years, the contract would have to be in writing. By the very terms of the agreement there is no way the contract could be performed within one year. If, on the other hand, the contract called for the jeweler to deliver five pieces within a period of five years, the contract would not have to be in writing under the Statute of Frauds. It is possible that the jeweler could deliver all five pieces within the first year. The fact that the jeweler does not actually complete performance of the contract within one year is immaterial. So long as complete performance within one year is within the realm of possibility, the contract need not be in writing to be enforceable; it may be oral.
Contract for the sale of goods
Any contract for the sale of goods valued at $500 or more must also be in writing and signed by the party against whom enforcement is being sought. The UCC defines goods as all things that are movable at the time the contract is made, except for the money used as payment.
The fact that a contract for the sale of goods at a price in excess of $500 is not in writing does not void the agreement or render it illegal. The parties are free to perform the oral arrangement, but if one party refuses to perform, the other will be unable to legally enforce the agreement.
The real question becomes whether a particular contract involves the sale of goods for a price of $500 or more. Although the answer would generally seem to be fairly clear, ambiguities may arise.
Example: If a supplier agrees to provide a business with all its stationery needs for the coming year, does the contract involve the sale of goods for a price of $500 or more? If the jeweler sells a number of pieces to a customer where the total purchase price exceeds $500, but the price of the individual work is less than $500, which price governs?
If a contract involves a hybrid of goods and services (e.g., buying a car and having it renovated), the contract must be in writing as long as the goods involved are over $500 in value. If a contract is for performance of personal services only (e.g., for renovation to be performed on a car), the Statute of Frauds and UCC would not apply, and the contract would be enforceable even if it is not in writing. However, the party trying to recover for breach of the contract would still have to surmount the problem of proving the existence and terms of the contract. In light of these possible ambiguities, the safest course is to put all oral contracts into writing. Most states have additional circumstances requiring contracts to be in writing, so you should be wary of entering into any important oral contract.
Written confirmations of oral contracts
The UCC provides businesses with an alternative to a written contract for the sale of goods. Under the UCC an enforceable contract is created if:
one merchant sends another merchant a written confirmation of an oral contract,
the confirmation is sent within a reasonable time after the contract was made, and
the recipient does not object to the confirming memorandum within 10 days of its receipt.
A merchant is defined as any person who normally deals in goods of the kind sold, or who, because of occupation, represents himself or herself as having knowledge or skill peculiar to the practices or goods involved in the transaction. Most businesspeople are considered merchants.
It should be emphasized that the sole effect of the confirming memorandum is that neither party can use the Statute of Frauds as a defense. The party sending the confirming memorandum must still prove that an oral contract was made before or at the same time as the written confirmation. However, once such proof is offered, neither party can raise the Statute of Frauds to avoid enforcement of the agreement.
Providing detail in a confirming memorandum
The advantage of the confirming memorandum over a written contract lies in the fact that the confirming memorandum can be used without the active participation of the other contracting party. It would suffice, for example, to simply state: "This memorandum is to confirm our oral agreement." Because you would then still have to prove the terms of that agreement, it would be useful to provide a bit more detail in the confirming memorandum, such as the subject of the contract, the date it was made and the price or other consideration to be paid. Thus, you might draft something like the following:
This memorandum is to confirm our oral agreement made on July 3, 2000, pursuant to which supplier agreed to deliver to purchaser on or before Sept. 19, 2000, 5,000 sheets of letterhead for the purchase price of $600.
There are two advantages to providing some detail in the confirming memorandum:
First, in the event of a dispute, you could introduce the memorandum as proof of the terms of the oral agreement.
Second, the recipient of the memorandum will not be able to offer any proof regarding the terms of the oral contract that contradicts the terms contained in the memorandum. The recipient, or for that matter the party sending the memorandum, can introduce proof only regarding the terms of the oral contract that are consistent with the terms, if any, found in the memorandum.
Thus, the purchaser in the above example would be precluded from claiming that the contract called for delivery of 10,000 sheets of letterhead because the quantity was stated in the written memo and not objected to. On the other hand, the purchaser would be permitted to testify that the oral contract required the supplier to engrave the letterhead in a specific way since this testimony would not be inconsistent with the terms stated in the memorandum.
One party to a contract can prevent the other from adding or inventing terms that are not spelled out in the confirming memorandum by ending the memorandum with a clause requiring all other provisions to be contained in a written and signed document. Such a clause might read:
This is the entire agreement between the parties and no modification, alteration or additional terms shall be enforceable unless in writing and signed by both parties.
If you use such a clause, make sure there are no additional agreed-to terms that have not been included in the written document. A court will generally be confined to the four corners of the document when trying to determine what was agreed to between the parties.
An exception to this rule is that a court may allow oral evidence for the purpose of interpreting ambiguities or explaining the meaning of certain technical terms. The court may also permit the parties to introduce evidence of past practices in connection with the contract in question, in connection with other agreements between the parties, or even in connection with contracts with other parties.
To sum up, businesspeople should not rely on oral contracts alone--they offer little protection in the event of a dispute. The best protection is afforded by a written contract. It is a truism that oral contracts are not worth the paper they are written on. If drafting a complete written contract proves too burdensome or too costly, you should at least submit a memorandum in confirmation of the oral contract. That at least surpasses the initial barrier to enforceability raised by the Statute of Frauds. Moreover, by recounting the terms in the memorandum, you are in a much better position to prove the oral contract at a later date.
IAAL
