F. How to Turn an Oral Contract into a Written Agreement

An oral contract is a verbal agreement between parties defining their working relationship. Such contracts may be binding when the duties, compensation, and terms of the arrangement are agreed to by both parties. Salespeople, consultants, and other independent contractors often have oral agreements because their companies refuse to give them written contracts. Many principals use oral contracts because there is no written evidence to indicate what terms were discussed and accepted by both parties when they entered into the working arrangement. If disputes arise, it is more difficult to prove that the other party failed to abide by the terms of the agreement. For example, if a 5% commission rate was accepted verbally, a dishonest principal could deny this by stating that a lower commission rate on certain sales had been discussed and accepted. The salesperson would then have to prove that both parties had agreed to a higher commission rate.

When a legal dispute arises concerning the terms of an oral contract, a court will resolve the problem by examining all the evidence the parties offer and weighing the testimony to determine who is telling the truth. To avoid problems, all salespeople, consultants, and independent contractors should obtain written contracts to clarify their rights. However, if the company refuses to offer you a written contract or sign an agreement you prepare, there are ways to protect yourself and turn a handshake into a written agreement.

Your chief concern should be directed toward obtaining written evidence indicating the accepted terms in important areas such as your commission rate, assigned territory, job security, notice-of-termination requirements, and proper accounting. If a company refuses to sign a written agreement, write a confirming letter whenever you reach an oral understanding relating to your arrangement.

Be as specific as possible when referring to subjects that you and the company have agreed upon. Write the letter with precision, since ambiguous terms are generally resolved against the letter writer. Keep a copy of the letter for your own records and save the certified mail receipt. If at a later date the terms of the oral agreement are changed (for instance, additional territory is assigned to you), write another letter specifying the new arrangement. Keep a copy of this letter and all correspondence sent to and received from the other party.

Tip:If the company fails to respond, the terms of your letter can serve as a valid contract in most instances. Thus, include language in the letter notifying the company that if there are any misunderstandings or disputes with what you have presented in the letter, it is the company's responsibility to respond back to you. The letter on page 46 serves as a good illustration of the kind of letter you may send.