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Why Verbal Agreements Can Cost Your Business

In Illinois, oral contracts are legally recognized and enforceable. However, they can pose significant challenges, particularly in business disputes.

Key Differences Between Oral and Written Contracts

•Written business contracts provide tangible evidence of agreed-upon terms.

•Oral contracts rely solely on verbal communication, making them inherently more difficult to prove and enforce.

Requirements for an Enforceable Oral Contract

To be legally binding, an oral contract must satisfy these essential elements:

•Offer

•Acceptance

•Consideration

•Mutual intent

For example, if two parties verbally agree that one will provide construction services in exchange for payment, and both act in reliance on this agreement, a binding oral contract likely exists under Illinois law.

Statute of Frauds – A Safeguard for Certain Transactions

Some agreements must be in writing to be enforceable under the Statute of Frauds, including:

•Sale of goods over $500

•Agreements that cannot be performed within one year

•Real estate transactions

Challenges with Oral Contracts

•More susceptible to ambiguities and misunderstandings.

•Courts examine the actions of the parties to determine the terms and enforceability, including:

•Performance

•Reliance on the agreement

•Consistency of the parties’ actions with the alleged terms

The Risks and Benefits

Oral contracts offer flexibility and simplicity, allowing parties to reach agreements quickly without formal documentation. This can be useful in time-sensitive situations or low-stakes transactions. However, the lack of tangible evidence increases the risk of disputes and makes enforcement more difficult.

Conclusion

While oral contracts can be legally binding, written agreements are almost always preferable to ensure clarity, enforceability, and legal protection.