We frequently have clients come to us with disputes about the difference between what is written in a contract and what the parties believed they agreed to. For example, a client may co-sign a loan to help a friend buy a car, only to find that the lender is coming after them for money, and they’re upset because they believed the agreement was informal and did not create a legally enforceable contract.
Here’s another example – “I let my brother live at the house and loaned him money, but we didn’t write anything down because he’s a good guy and promised to pay me back and leave after a week.” Or even more troubling, “I transferred the title of this item to my daughter so we could get an insurance discount, but now she won’t give it back because there was no written agreement in place to create a legally enforceable contract.”
While these situations may sound extreme, they happen far more often than people realize. Many individuals assume that because something is “just on paper,” it does not create a legally enforceable and binding contract.
But the truth is this: courts rely on the written document first and foremost. A verbal agreement, good intentions, handshakes, and reassurances are rarely enough to overcome what a person actually signed.
This is why it is so important to understand how to write a written contract, or at the very least, to know when a contract needs to be written. A written document provides clarity, certainty, and evidence, three things that matter immensely when a dispute arises. Without something in writing, disagreements often devolve into “he said, she said,” which makes it extremely difficult for a court to determine what the parties actually agreed to.
Does a Contract Have to Be Written, Always?
Clients often ask: “Does a contract have to be written to be enforceable and do do verbal agreements hold up in court?” The answer is not always. Some verbal agreements can hold up in court, but only under limited circumstances, and only when the agreement does not fall under the Statute of Frauds. When a deal involves real estate, certain loans, long-term commitments, or financial guarantees, a written contract is required to create a legally enforceable contract. Even when a written contract is not mandatory, having one dramatically increases the likelihood that a court will treat the agreement as enforceable.
Another frequent issue is that people underestimate the complexity of even “simple” deals. Borrowing money from a sibling, allowing someone to move in temporarily, or cosigning for a car may feel informal, but legally, they can carry the same consequences as a formal commercial binging contract. Understanding this before you sign, or before you skip signing, can prevent years of stress and costly litigation.
Why It’s Vital To Put Your Agreements In Writing
Everyone has good intentions at the start. Maybe your friend really did intend to pay their loan. Maybe your brother really did intend to leave and pay you back. Maybe you really needed the discount, and insurance companies are rich, so who does it hurt? But it is important to realize that every agreement, whether written or verbal, carries legal consequences.
Nearly every written contract contains an integration clause. This is a clause in the contract to the effect that every part of the deal is included in the written agreement. Side deals, including those with the friend promising the co-sign is “just on paper,” will not be honored. Even contracts without such express language are often interpreted to exclude any kind of side dealings, making verbal assurances ineffective.
Co-signing any kind of loan or rental agreement, or in any way putting down your name as someone who will be financially responsible for another person’s actions or debts, is risky. You should not do it unless you are willing, ready, and able to pay the debt. If you can’t afford to pay the loan, or don’t want to, don’t sign on the dotted line.
Integration clauses are a major reason courts insist on the written version of a deal. But even without an integration clause, the law expects adults to read what they sign. Judges routinely hold that a person is bound by a contract even if they didn’t read it or didn’t understand all of it. That can come as a shock, but contract law generally is built around the idea that written documents preserve the actual, reliable terms of an agreement.
When clients ask why a side promise isn’t enforceable, the answer is usually simple: it wasn’t included in the document. This is why understanding how to write a written contract that accurately reflects the full deal is so important. A written contract example does not have to be complicated to be enforceable. Even a simple agreement that states the key terms, who is doing what, when it must be done, and what happens if someone breaches, can carry tremendous protective value.
It also helps to use clear, plain language. You do not need legal jargon or dense formatting for a contract to be binding. Courts care more about certainty than style. What matters is that the written words capture the actual agreement, leaving as little room for interpretation as possible.
Document Signage and Financial Responsibility
You should always be cautious about signing any document that makes you financially responsible for someone else. Cosigning is legally identical to taking out the loan yourself. If the other person defaults, you must pay. Many clients later say, “But I only signed because I trusted them.” Unfortunately, trust is not a legal defense. A written contract defines responsibility, and lenders will hold you to it.
The same is true when loaning money. Do not loan money to anyone if you are not willing to a) write the loan off as a gift or b) sue the person. Know that a lawsuit can be expensive. And unless you had a written agreement with an attorney’s fee clause saying that the party that wins any lawsuit recovers their attorneys’ fees, you are unlikely to be entitled to recovery of any of your attorneys’ fees. A lawsuit can easily incur tens of thousands of dollars in fees and expenses. Even the most streamlined, basic lawsuit that is resolved on default or in early mediation can easily surpass $15,000 in fees and expenses.
A house guest can be seen as a tenant under California law faster than you might think. Even residencies under a month can qualify someone for tenancy rights. Most people will leave when asked, but for those who decide to push back and argue that they have obtained some rights to stay, what do you do? A formal eviction costs money and can take several months to complete. The best option is to never invite someone for an open-ended stay. If someone is going to be moving in “just until they get back on their feet,” put a tenancy agreement in writing.
Another area where people get into trouble is relying on informal agreements about property, vehicles, or other high-value assets. Clients often ask whether a verbal agreement holds up in court when someone borrows a vehicle, shares property, or picks up expenses on someone’s behalf. While a verbal agreement can be enforceable, proving the terms of the agreement without documentation is extremely difficult. If ownership or long-term rights are involved, courts almost always defer to the written record, such as DMV title, property deeds, and bank statements.
Finally, we all want to save money and get the best deals. But any kind of agreement that is deemed illegal is unenforceable. If you have lied or stretched the truth or moved things around for a better deal, do not be shocked when a court won’t enforce the deal or finds you guilty of fraud. The classic example is a drug deal. If you bought $100 worth of cocaine but your dealer gave you a baggie of flour instead, you cannot sue them. The underlying transaction was illegal (an attempted drug deal), and the courts will not enforce any kind of illegal bargain.
The theory applies to dealings that are not so cut and dry as a drug deal as well. Moving assets to avoid a collection agency or passing title to avoid fees or get a better loan rate could all be deemed illegal. A court will not enforce those deals, and so you may not have any legal recourse to get your assets back.
Reach Out to LloydWinter Today to Guide You
The old saying goes that you should not be penny-wise but pound-foolish. If you are considering entering into any sort of transaction and are unsure about the legal consequences, we suggest you retain counsel to advise you BEFORE the deal is struck. Waiting until things go wrong to call in a lawyer to sort out the mess will cost you time and money.
Paying a small fee up front to have a lawyer review the transaction and advise on the best way to proceed will almost certainly save you in the long run. If you’re considering entering into an agreement and want to understand the legal implications before you sign, reach out to our team. We’re here to help you protect your interests before problems arise. Learn more about working with the team at LloydWinter here.
