What California Business Owners Need to Know About Verbal Contracts

Verbal agreements are not a mainstay in modern business environments. Although enforceable in California and subject to different enforcement issues than written contracts, they are subject to significant limitations that make their efficacy questionable.

First, verbal agreements are enforceable only to extent that all parties to the agreement can prove its terms. Without anything being confirmed in writing, you have to hope that witnesses to the transaction are available and willing to back up your version in court should a dispute arise.

Other limitations cover the nature of the agreement and the amount of money involved. According to the Statute of Frauds, the following transactions must be put in writing in order to be considered enforceable:

  • The sale of real estate and other land
  • Transactions worth $500 or more
  • Marriage contracts
  • Jobs that are expected to take more than a year to complete
  • An agreement to cover another person’s debts

California law also mandates that certain agreements be in writing. If, for example, you entered into an agreement with a friend to buy his car, the transaction is covered by section 2201(1) of the California Commercial Code, which provides that the sale of goods valued at over $500 cannot be enforced unless there is a written agreement.

The purchase of certain items must also be in writing. If you worked with a broker to buy a yacht, the Statute of Frauds is invoked because yacht brokers are regulated by the California Yacht and Ship Brokers Act, which requires any agreement for the purchase and sale of a yacht to be in writing.

The primary appeal of a verbal agreement is that it dispenses with paperwork and enables the transaction to be accomplished relatively quickly. If a dispute arises, the original convenience will seem trivial in retrospect. Unless you can provide tangible proof that the contract was breached, the judge may be forced to use their discretion in making a ruling, and the outcome might not be what you hoped for.

If you are a California business owner, it is always in your best interests to get a business contract in writing, no matter how minor or informal the transaction may be. Integrated General Counsel can assist you in drafting a written contract that remains enforceable if the other party decides to dispute it, protecting your interests and your business.

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Written by Integrated General Counsel

Our focus includes handling a variety of corporate matters and also includes litigation in state and federal courts. Our current practice includes providing transactional services and representing a variety of small and medium-sized companies as their outsourced general counsel.