Business Practice Pointer: Avoiding Verbal Agreements

Posted by on Jun 25, 2013 in Draft Your Contract, Practice Pointers

Many of the business disputes our clients face are the result of a misunderstanding or miscommunication concerning the parties’ respective obligations under a given contract.  While many startups or entrepreneurs may not believe they are in the contract formation stage of their business yet, they may easily engage in conduct or conversations that can lead to similar business disputes down the line.

One classic mistake many businesses and entrepreneurs make is coming to a verbal agreement that is not memorialized in any “provable” fashion.  When a discussion or negotiation occurs verbally, whether over the phone or in person, it is difficult to prove the content or outcome of the discussion should there be any disagreement in the future concerning what was said (unless someone was recording the conversation!).

Whether the discussion concerns the scope or timing of work or services to be performed, or whether the discussion concerns something seemingly more mundane, such as when the next discussion will occur, it is important to remember that, if it isn’t written or recorded in some manner, then it will be difficult to clarify or prove later should the need arise.

We hear from clients and entrepreneurs all the time about how they thought one thing, engaged in behavior based on their belief (or, even worse, incurred expenses based on their belief!), only to find out the other party had a completely different understanding.  When we ask whether either party can prove what the understanding was, the typical response is, “Well, we discussed it over the phone,” or, “We just talked about it when we ran into each other.”

The lesson to be learned is that, whenever possible and whenever you can remember, try to make a habit out of following up a verbal conversation with a written re-cap.  Usually a simple email will work, such as:

— “Hey, it was great seeing you today and talking about _______.  As I mentioned, I will  _______ and be ready to discuss it with you on ______.”    

— “I wanted to follow up our conversation earlier today and say ‘thank you’ for your willingness to take care of _____.”

— “I wanted to thank you for your understanding that I am going to need more time to _______.”

By following up verbal agreements with a written reference or summary, you ensure that, at the very least, there is something to help substantiate that the occurrence and the scope of the conversation.

NOTE:  If you do not want to be able to substantiate the occurrence or scope of a conversation (i.e. it will be beneficial to you to not be able to prove it later), then you may want to intentionally fail to follow up.  However, you can use the follow up to your advantage by indicating in your email what your understanding was.

At any rate, as we often tell our business clients:   Although you may not think the content of the conversation could ever turn into a real problem, there’s never a problem until there’s a problem