Is Your Word Your Bond?

What's this about a simple solution to verbal agreements? Who says there's a problem? As a lawyer who has had to litigate contract cases involving verbal agreements, I say, "I do."

Do you remember playing the game "telephone" as a kid, where you're supposed to repeat the exact phrase the person on your left whispers into your ear to the person on your right? I have vivid memories of being at summer camp, sitting in a large circle with 27 other 8-year-olds. The counselor would kick off the round with "Farmer Jones has a donkey." By the time it made its way around the circle, the phrase became "My gym partner's a monkey." And that was one of the more accurate results.

Why does that happen? Are 8-year-olds incapable of repeating a simple phrase? No, it's that other things intervene. We were sitting in a field where a tractor was grinding nearby. Maybe someone didn't hear the phrase accurately. Or maybe one of the kids deliberately wanted to change the phrase. After all, "Farmer Jones is a monkey" is a lot funnier than "Farmer Jones has a donkey."

What does this tell us about verbal agreements in a business context?

• They can create misunderstandings.
• They aren't easy to prove.
• Memories are fallible.

As a result, any one of these areas can create a contentious "he said, she said" situation if your respective memories don't agree. And these are the honest mistakes.

While it's nice to want to think your word is your bond, not everyone operates that way. Verbal agreements give you little defense against those who actively seek to burn you. Also, when your clients are located across state lines, business can become more complicated. Where will you resolve disputes? Whose law will apply? These are issues that can add significant costs to a lawsuit and that a handshake deal won't address.

Verbal agreements can be especially dangerous when personal relationships are involved. If a friend loans you money for your business and you have different recollections about what needs to be repaid and when, you're potentially jeopardizing both your business relationship and your friendship. Similarly, you don't want the discussion of "when will my deadbeat sister get around to repaying my money?" to become the focus of Thanksgiving dinner. Friends and family aren't necessarily on your wavelength merely because of the closeness of your relationship. In fact, with close relationships you should be extra vigilant because there's more at stake.

So what's the solution to verbal agreements? Put it in writing.

A written agreement ensures that you and the other party are on the same page. When you see your agreement in black and white, you have the opportunity to say, "Hey, I didn't agree to that!" before you get too far into the business relationship. Better yet, when you spell out exactly what you intend to do, how you'll be compensated and what happens in the event of a dispute, you can avoid any complications from selective, fallible or faulty memories.