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.