Franchising and the Legality of Oral Contracts

It used to be when one person shook hands with the other this formed a viable contract. As most people tend to believe that this age-old method still applies may be in for quite a shock. More often the “handshake” or “verbal commitment” is good enough for most people… when the deal is for less than a few dollars or a promise to help move furniture. As people’s business practice evolved so to have the business instrument that guides both parties. That business instrument being a physical contract whereupon both make their mark to agree to terms of the “deal”. When it comes to franchising a business or buying a franchised business you’ll find that everything will be in the physical form.

An oral agreement may work for some franchisees but the promises placed must be produced or problems arise on running a successful and financially viable franchise. What one considers to be an oral arrangement most courts would expect you to show proof of the arrangement. Will you win in court? That all depends on your evidence, and really, how often do you record your conversations? As well, some state and county courts do honour oral agreements with a limit on monetary value, say less than $500 USD.
So as a franchisor or a franchisee the rules must be applied that anything that is needed to be done by either party must be written if it is to hold any weight with a court of law. An agreement can be a standard form but it must be approved and signed by both parties which then signify both parties understand what they and the other party must do to fulfill the contract.

Franchise paperwork is rather lengthy and often cumbersome when it needs to be edited as the franchisor may have to deal with rulings from several different states. This contract paperwork must always be up to date and available as you never know when a new franchisee will sign on to represent you.