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What small business owners should know about verbal contracts

As a small business owner, you may understand the importance of a clear, concise and fair contract. In fact, you use contracts for nearly every business transaction, from hiring new employees to making sales and purchases. However, like most Georgia residents, you are also a friendly person and you prefer to keep your transactions as hassle-free as possible. You might have working arrangements with some of your associates without relying on a written contract.

So far, this has served you well. However, what happens if there is a business disagreement? Can you uphold the terms of a verbal contract in court? For example, you may have agreed over the phone to make an equipment trade with an associate you have done business with in the past. However, after the trade, you found out the equipment was defective, but the associate denies anything was wrong with it. You might want to take him to court but worry that you have no proof of an agreement between the two of you. Unfortunately, you might be correct. It would be difficult for a judge to uphold the terms of your verbal contract when it is your word against your associate’s.

There are some cases under the Statute of Frauds in which you will need a written contract to be valid in court. These include the following:

  • Transactions involving more than $500
  • A job expected to take longer than one year to complete
  • A real estate or land transaction
  • An agreement to pay off someone else’s debt
  • Marriage

With sufficient proof, a court may hold up your verbal contract. However, it may be in your best interest, as well as the interests of those you do business with, to include a written contract with each of your business transactions.

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