What’s the Problem with Verbal Contracts?

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Foster Swift Collins & Smith

For decades, this author has written articles on the importance of getting equine-related agreements in writing. Some of the articles even shared common characteristics of effective contracts. Still, people in the horse industry continue doing business with nothing in writing, and disputes have occurred. This article explores what can potentially happen when verbal contract disputes become the subject of a legal battle.

Real Cases Where Verbal Contracts Failed

Over the years, verbal contract disputes have generated legal battles. Here are three examples of cases where verbal agreements failed in court challenges because of state laws:

  • In a 2003 case from Maine, a verbal agreement regarding ownership, care, training and racing of thoroughbred racehorses was found to be void and unenforceable based on a state law [Maine Statute of Frauds, 33 M.R.S.A Sec. 51(5)] that required certain types of contracts to be in writing. The verbal arrangement in that case, the court found, violated the law.
  • In a 2000 New York case, the court refused to enforce a verbal contract involving the boarding, breeding and care of mares and resulting foals. In doing so, the court relied on a state law [New York General Obligations Law Section 5-701] that required certain types of contracts to be in writing to be enforceable.
  • In a 1972 New York case, the plaintiff was a horse buyer who claimed to have a verbal agreement to buy the defendant’s racehorse for $60,000. The seller denied an agreement existed, however, and no written contract existed. Arguing that the alleged verbal agreement should not be enforced, the seller cited a different state law [New York’s Uniform Commercial Code, Article 2-201], which required contracts for the sale of goods priced at $500 or more to be in writing. Based on the law, and taking into account circumstances of the dispute, the court ruled that no enforceable agreement existed.

Equine Industry Statutes That Can Make Contracts Important

Aside from general state laws referenced in the cases described above, that can apply to a wide variety of industries, many states have laws unique to the equine industry. These laws sometimes make written contracts important, if not necessary. For example:

Equine Activity Liability Statutes.

Currently, 48 states (all but California and Maryland) have some type of equine activity liability statute. Some require written contracts. Arizona’s law, for example, provides no protection unless the equine activity participant has signed a “written waiver” that includes specific language supplied in the law. Similarly, West Virginia’s law requires participants to sign a written statement using language that the law provides. Under the laws in a small number of states, “equine activity professionals” or “equine activity sponsors” will lose any benefits in their equine activity liability statute unless their written contracts include the law’s “warning” language or other language as the law specifies.

Equine Sale Disclosure Laws.

California, Florida, and Kentucky have equine seller disclosure laws, which can impact the language of certain equine sales contracts in those states. Kentucky’s law requires, among other things, written bills of sale and disclosure of agency relationships in sales transactions involving race horses. Florida has an equine sales statute that requires, in part, that sellers and agents in Florida horse sales use written disclosures and consent agreements. California’s Business and Professional Code can impact sales contracts involving racehorses in that state as it requires written bills of sale, disclosures of commissions, and more.

What Happens in a Verbal Contract Dispute?

When legal disputes involve a verbal agreement, resolving them is never quick, easy, or cheap. Why? With nothing in writing, each party to the transaction usually will have a totally different understanding of what it involved. As a result, the outcome of lawsuits can be uncertain, but what is certain is that legal fees could be very expensive.

This article is not meant to suggest that written contracts will prevent all disputes from occurring. Sometimes even the most sophisticated contracts can generate legal disputes. To their credit, however, written contracts can help narrow the grounds of a dispute, which can save time, money, and aggravation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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