What happens when you get in a business dispute and don’t have a contract? Do you just take the loss? No, because you probably do actually have a contract.
What’s a Contract?
According to the Cornell Legal Information Institute, a contract has five elements:
- Mutual agreement
- Offer and acceptance
- Adequate consideration (e.g., money for goods/services)
- Capacity (e.g., not a minor, not insane, etc.)
- Legality (not against the law)
What you don’t see is:
- Labeled “Contract”
- Using legal language
- In a specific form
A contract can be:
- An official-looking document filled with legalese
- A basic letter
- An email
- A series of text messages
- Even an oral agreement*
*When Oral Contracts Aren’t Valid: Statute of Frauds
Because of the difficulty in proving oral contracts, the law doesn’t allow them for certain important agreements. Under the common law, these exclusions are covered by the statute of frauds. Most states have similar requirements with some differences, additions, or exclusions.
- Promises made in connection with marriage
- Contracts that can’t be completed within a year
- Real estate sales (leases are under the 1-year rule)
- Promises to pay someone else’s debt
- Contracts for the sale of goods over $500 (this limit varies by state)
The Problem is You Have to Prove What Your Agreement Was
The real sticking point in a breach of contract dispute is that you have to prove that you had an agreement. This is especially true when the other party has a different understanding of the deal or just straight-up lies.
This is where having a formal written contract will help you. But if you have evidence of other communications that add up to the legal elements of a contract, you can still prove you have a contractual agreement.
You can prove that you had a contractual agreement if you can prove the following elements.
- You or the other party made an offer.
- The other person or business accepted the offer.
- There was consideration. In most contracts, someone gets paid in exchange for a good or service. However, consideration can be virtually any promise to do or not do something.
- There was mutual agreement. This is the hardest part with no written contract. You have to show that both parties understood and agreed to the terms.
How to Prove You Had an Informal Contract
One of the easiest ways to prove that you have a contract is if you made the agreement over email or text messages. This can actually be a legally binding contract — you don’t need a formal legal document.
Another common example is if you’re a business with set prices for all customers but don’t have customers sign a formal contract. You can use evidence like your posted price list or the brochure you gave the customer.
Hopefully, when you refer back to your proof, the other party will honor the deal. If they don’t, you could end up in small claims court trying to convince a judge to rule that you had a contract.
The judge will look at things like:
- The legal elements of a contract
- Whether you had a complete deal
- If there are holes in the contract, is there a way to fill them in
- Whether the other party has evidence that contradicts yours
- Whether the parties took actions that followed the contract
- The reasonableness of what everyone did
This is mostly a matter of judgment and discretion. Judges will often follow precedent (how a previous judge ruled with similar facts), but the nature of informal contracts is that there are few black and white rules.
So Can You Sue if You Don’t Have a Contract?
You’ll have an easier time proving you had a contract if you have a formalized agreement, but it’s not the end of the world if you don’t have one. An informal contract is still a contract.
Of course, you’ll need to think about whether the value of your contract is worth pursuing a claim and/or hiring a lawyer. You can often get a free consultation with a lawyer to ask about your chances of success and the potential costs of litigation. From there, it becomes a business decision of what you want to do.