Verbal Agreements: Beware! Still Better to Get it in Writing
By Elizabeth A. Walters, Esq. - Attorney Specializing in Collections and Mechanic's Lien Law

It used to be a handshake and the word of a person was all that was needed in business. Unfortunately, that day is long gone and those who still conduct business without written contracts all too often find themselves in legal battles to get paid for the value of their services, materials, and labor they have provided.

Even with a written contract, the issues and fights a contractor must endure and address on any job can result in litigation. To wrestle over the terms of verbal agreements makes these battles much more expensive and much more difficult.

Many times there is a written contract to begin with but then additional work is verbally requested of the contractor without anything confirmed in writing. In the contracting field, jobs without change orders or extras are few and far between, no matter what state or city you are in, or what type of project it is. As a result, a high percentage of litigation by contractors is for payment of extra work.

There is a common misunderstanding that a verbal contract is not binding and only a written contract can be enforced. While written contracts are required in some areas of commerce, for contractors a verbal contract is binding in many states. So why have a written contract if a verbal contract is enforceable?

One of the main reasons for having a written contract is to have an attorney’s fees provision as part of the terms. One of the first—and most often—asked questions of me when contractors call with collection problems is whether they will be able to recover attorneys’ fees if there is legal action under a breach of contract cause of action. The response is always the same: Is there an attorney’s fees provision in the terms of the written contract?

If there is such a provision it will most likely be considered reciprocal, with the prevailing party being awarded attorneys fees. If there is no such provision then most likely there will be no chance for recovery of attorney fees by either party.

(Many times it is an intentional decision not to have such a provision in the written terms. Without the chance of recovery of any attorney fees the economics of litigation is almost immediately impacted. Very often the smaller of the fighting parties is at a disadvantage from the start of any battle since any fees expended will not be recovered.)

Another vital reason to have documentation of the terms in writing is in addressing extra work or change orders. Most written contracts state that any additional work has to be pre-approved in writing prior to it being performed. Yet, even with this in writing, the clear majority of extra work is based on a verbal request. The moment this happens, the party performing the work is fighting an uphill battle for payment if they are not paid for their efforts (they are fighting the terms of the written contract previously agreed to).

Likewise, if there is no written contract at all, then it is based on the words of the involved parties as to what is the scope agreed to (and the value of those services) should there be any disagreement between the parties. This can result in a lengthy and, thus, costly legal battle.

There are many possible pitfalls on any contracting job that could prevent payment. Making sure that terms that are important to you as a contractor are in writing will go a long way to increasing your chance of getting paid. No matter how nice you are asked, or promised you will be taken care of, get it in writing.

Ms. Walters is a San Diego-based attorney specializing in dispute resolution in the general construction industry, including irrigation companies. She may be reached at eaw@eaw-law.com.

This article is for informational use only and does not constitute legal advice.