Arizonans love to do things the old-fashioned way. If I had a dollar for every time a client explains a deal to me by saying something to the effect of, “Well, we shook on it, so it was official,” I would be a moderately wealthy man. Verbal agreements have their place in business, but it is a small one. When a transaction or agreement goes south and you end up in your attorney’s office, one of the first questions you’ll be asked is, “Did you get it in writing?” If you did not, your attorney will roll his eyes and the likelihood of you prevailing will take an immediate hit.
In general, verbal contracts are more difficult to enforce than written contracts because of 1) the frailty of the human mind; and 2) the lack of clear advantage when it is one person’s word against another’s. The mind’s inability to hold precise and exact details, together with the fact that two people can understand the same conversation in two very different ways makes enforcing oral contracts a tedious and, occasionally, impossible process. Judges know those things and are thus less likely to side with one party’s understanding over the other’s.
In real estate specifically, there is another substantial reason that you should always have any contract or agreement in writing: the statute of frauds. Arizona Revised Statutes §44- 101, known as the statute of frauds, states that you cannot prevail in a lawsuit against another to enforce an oral contract when the agreement was:
• for the sale of goods exceeding $500;
• not to be performed within one year of the origination date;
• for a lease of more than one year;
• for the sale of property or an interest therein;
• for the engagement of an agent or broker to purchase real estate; or
• related to the extension of a loan or credit in an amount exceeding $250k.
As the vast majority of disputes AZREIA members will find themselves in fall into at least one of the categories, it becomes even more apparent why having an agreement in writing is so essential.
A written contract allows you to clearly document the specific terms of your agreement, providing a venue for parties to hammer out all of the foreseeable points of dispute in one, clean document. Should any disagreement arise down the line, the parties can easily refer to the terms they set forth in the document to see how they agreed to be governed in such a situation. Simply stated, a well-drafted written contract will save money and time in the event of a dispute and will preserve business relationships by making the ‘rules of the game’ easy to access.
To take advantage of the benefits outlined above, your contract should be thorough and detailed. In some instances, this can be accomplished by the parties sitting down and having a frank discussion about the issues they foresee, then drafting the contract in such a way as to head those issues off in advance. In other instances, it can be very helpful to have an experienced professional draft (or review) the contract. Such a professional has likely seen the ugly back-end of such transactions where the parties are already in dispute, and will thus know how to draft the agreement in such a way as to avoid those situations. Detail is king in writing a good contract.
If there was one phrase I wish all of my clients would always have at the front of their minds, it is simply, “Get it in writing.” I have seen wonderful ideas and promising ventures torpedoed too early because one party did not understand what the other party expected. A thorough, concise contract can be the difference in great success or lost friendship and spoiled business opportunity.
If you need assistance in drafting or reviewing a contract, please reach out to Mick McGirr at Phocus Law. He can be reached by phone at (602)457-2191 or by email at mick@phocuscompanies.com.
by Mick McGirr, Phocus Law
Originally published in the October 2021 AZREIA Newsletter