Imagine for a second that you are a new small business owner trying to get your startup graphic design company off the ground. You go to lunch with an acquaintance and over a couple of beers you promise to design a website for his landscaping business. You go back to work that day and you forget about the promise. A few weeks later the acquaintance calls and asks about the website. You tell him you forgot and that you are now too busy with other projects to design the site. You hang up the phone believing that you are in the clear because the deal was never put in writing, but in fact, the opposite would be true. You could be legally bound by the promise you made to design his website.
A promise doesn’t have to be in writing to be a “contract”
You, like many other people, were operating under a common misconception: the belief that promises have to be in writing in order to create a valid contract. The truth is that only certain types of contracts are required by law to be in writing and that many types of contracts can be made with words alone. This is knowledge that every person should have a sense of, but it is especially important for the small business owner, as she may frequently be making promises and not be aware that she could be sued for breaking them.
Rules for oral contracts
There are a few basic laws regarding oral contracts that every businessperson should be aware of. First, a contract for the sale of services generally does not have to be in writing. So if you are selling a service, such as a home cleaning service or car wash business, your oral promises will most likely be legally binding. However, if you are making a promise for the sale of goods totaling over $500, it will have to be in writing in order for it to be legally enforceable. Also, be aware that the definition of a good can vary, but it is generally any tangible object, such as a compact disk or a food item.
These rules are not absolute, and some exceptions to them do exist, but it is good basic knowledge to have when making deals for your business. For more detailed knowledge on which contracts require a writing, and which do not, contact a small business attorney. Whatever you do, be aware that legally binding contracts can be made without a writing and it is always good to keep that in the back of your mind, even if you are just grabbing a few beers with an old friend.
Guest post by Joseph Pometto, J.D.