Why Contracts Should Be in Writing: The Basics of Verbal, Written, and Hybrid Agreements

By Christopher Stienburg

Contracts form the foundation of both commercial and personal transactions, and understanding the different forms that contracts can take is important for both business professionals and individuals. In this article, we will explore why it's a good idea for contracts to be in writing, types of contracts, and the concept of the parol evidence rule.

The different forms of contracts

The form that a contract takes can vary, encompassing a spectrum from purely verbal agreements to fully documented written contracts, as well as combinations that blend elements of both. Specifically, contracts can be categorized into three primary forms:

• Completely verbal, where the contract's terms are agreed upon through discussion
• Fully in writing, with the contract's terms detailed in a document
• A mix of verbal and written, where part of the agreement is documented and some assurances are given verbally

With few specific exceptions, the format of a contract does not impact its validity. As long as the party asserting the existence of a contract can substantiate their claim, perhaps through witness testimony, the mere fact that the agreement was sealed with a handshake does not pose a barrier to its enforcement. However, for the purposes of demonstrating the agreement's terms, having the contract in writing is invariably the preferable option.

The parol evidence rule and what it means for contracts not in writing

Having a contract in written form carries a significant implication, particularly in invoking the parol evidence rule during judicial determinations of what a contract explicitly entails based on the intentions of the involved parties. "Parol" relates to verbal or spoken elements but, within this framework, it refers to any evidence external to the actual written agreement.

This rule restricts the use of external evidence regarding the contract's terms if the written document's language is explicit and designed to be the definitive source of the contractual terms. Business professionals should exercise caution when depending on verbal promises from the other party, as courts might not enforce such assurances as part of the contract if they are not documented within it.

The parol evidence rule underlines the importance of having all key terms clearly laid out in a written contract. It serves as a reminder for all parties to thoroughly review and include every critical aspect they wish to have in the agreement before finalizing it. This careful approach is essential to avoid complications later on, particularly if there’s a need to reference information not specified in the document itself.

Exceptions to the parol evidence rule: Understanding judicial flexibility

The parol evidence rule has been subject to judicial scrutiny, leading to a nuanced understanding of its application. Courts have recognized certain scenarios where external evidence related to a contract is both relevant and permissible. These exceptions include:

• Cases involving disputes over the contract's formation, such as allegations of fraud or mistakes. In such instances, parties may present external evidence to support their claims.

• Situations where the contract is explicitly understood to be both oral and written. Here, the parol evidence rule does not apply because the agreement was not intended to be fully encapsulated by the written document alone.

• Circumstances involving promises made in separate, collateral agreements, particularly if these are verbal. For example, a sale agreement for a building that is supposed to include equipment might not cover the equipment if it's not mentioned in the document. However, if there's an additional verbal agreement for the equipment, with its own price, this separate deal stands apart from the written contract concerning the building, avoiding the complications of the rule.

• When the contract's wording is unclear or ambiguous, external evidence can be introduced to clarify the meaning.

These exceptions not only underscore the rule's flexibility, but also serve as a testament to the nuanced nature of contract law, recognizing that legal frameworks must adapt to accommodate the complexities of real-world scenarios. They acknowledge that there exist legitimate circumstances where external evidence plays a pivotal role in accurately interpreting or enforcing a contract.

Understanding contract forms can mitigate risk

In conclusion, grasping the intricacies of contract forms—whether verbal, written, or a combination thereof—is essential for navigating the complexities of legal agreements. Contracts vary in their format, ranging from purely verbal to fully written, with hybrid agreements blending aspects of both. However, their validity and enforceability often hinge on the ability to establish their existence and terms.

The importance of explicitly stating all critical terms in written contracts is emphasized by the parol evidence rule, which limits the use of external evidence for interpreting contractual terms. Consulting a contract lawyer during contract drafting or finalization is vital to ensure thorough coverage and protection of interests, thereby reducing the likelihood of disputes arising due to the application of the parol evidence rule.

Furthermore, although the rule typically prohibits the use of external evidence, there are exceptions that illustrate judicial flexibility, recognizing circumstances where such evidence is necessary for interpreting or enforcing contracts.

By comprehending these principles and seeking professional guidance when needed, parties can mitigate risks and enhance the effectiveness of their contractual agreements.

FAQs on having contracts in writing

About the Author

Post by: Christopher Stienburg

Christopher Stienburg is a seasoned litigator at Roberts & Obradovic law firm. With extensive experience, he has successfully represented clients in complex employment law disputes, elder abuse and estates cases, professional misconduct claims, commercial disputes, and more. A graduate of Osgoode Hall Law School, Christopher is dedicated to helping individuals and businesses navigate the legal landscape.

Company: Roberts & Obradovic
Website: www.robertsobradovic.com
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