Why Is It So Important to Have A Written Contract When There Is a Contract Dispute?
Throughout your lifetime, you will likely enter into hundreds of contacts, both personal and professional. Some are relatively simple and of little importance while others are complex and control major purchases or significant business agreements. There is also a very good likelihood that you will end up in a dispute over one of these contracts at some point in your life – particularly if you are a business owner. Knowing that a contract could become the basis of a dispute is an excellent reason to insist that the contract be in writing. Why is it so important though to have a written contract when there is a contract dispute? There are actually several good reasons why you should always reduce a contract to writing.
Contract Basics – Elements of a Contract
At its most basic, a contract only requires three elements for formation:
- Offer – in legal terminology, an offer is a promise to act or refrain from acting, which is made in exchange for a return promise to do the same.
- Acceptance – acceptance occurs when the party to whom the offer was made makes an expression of assent to the terms of the offer. Unless no method is included in the offer, acceptance of an offer must generally be made in the manner specified in the offer. For example, if an offer indicates that by signing your name to the offer you thereby accept the terms, your signature serves as the method of acceptance.
- Consideration -- something of value exchanged between the parties to the contract. Consideration need not be monetary nor even tangible. It can be a promise to do something the party is not already obligated to do or refrain from doing something the party is entitled to do.
Oral vs. Written Contracts -- Enforcement
A contract may be written or oral. Though the term “verbal contract” is often used, it can be misleading. For purposes of discussing the enforcement of contracts we will stick to the terms “oral” and “written.” You have undoubtedly heard that enforcing an oral contract is much more difficult than enforcing a written contract which is why you should always reduce contracts to writing. That reality is a bit more complicated.
Almost all oral contract can be enforcement in Pennsylvania, meaning the law recognizes them as legally binding contracts. A few of the most common exceptions to this general rule include:
- Contracts for the sale of real property
- Leases of real property for more than a year
- Residential construction and home improvement contracts
- Contracts for the sale of goods valued at over $500 if the sale fall under the purview of the Uniform Commercial Code, or UCC
So Why Is a Written Contract So Important Then?
Just because an oral contract can be enforced doesn’t mean it will be enforced. The reality is that it is simply much more difficult to enforce an oral contract for a number of reasons, including:
- Unclear terms -- It is often difficult to determine the intended terms of an oral contract for obvious reason. A single word can change the legal meaning of a term or provision. Without the terms in writing, the parties may not differing recollections of the exact terms of the agreement they reached. ·Missing default – Most written contracts include an entire section devoted to what constitutes a default under the contract. In an oral contract, however, what constitutes a default can be vague, or even missing entirely, in the contract.
- “He said – She said” – when there is a dispute over an oral contract, a court is often left to sift through a whole lot of “he said – she said” trying to determine where the facts are.
- Modifications and amendments – one of the biggest challenges in an oral contract dispute can be trying to decide when the contract making actually ended. With a written contract, modifications or amendments are included in writing, making it abundantly clear when the parties intended to change the terms of the original contract. When an oral contract is used, however, it can be very difficult to differentiate between arguing and negotiating and actually agreeing to modify the contract after the initial contract was agreed to by the parties.
The bottom line is that you are always in a better position to defend your position in a contract dispute when your position is clearly illustrated within the terms of a written contract.