June 2005
ALSP Law Series
Do I Have a Contract?
prove that a Verbal Contract exists and exactly what its
terms are. In other words, it will be your word against
the other party.
The following information is designed to answer some
basic questions regarding contracts and contract law.
The following information was not meant to be a
complete explanation of contracts or contract law, but
rather only to provide some basic information. If you
have questions regarding a specific contract matter, you
should contact the HelpLine at 1-800-9 LAW AID (1800-952-9243) and apply for services.
Who wins depends, in part, on each party’s credibility or
in other words, who the judge believes. In addition, you
have less time to sue someone or be sued yourself
(called the statute of limitations) on a verbal contract
than a written contract. In most cases, you must sue on a
verbal contract in three (3) years and a written contract
in five (5) years.
WRITTEN VS. VERBAL CONTRACTS
“A friend and I agreed that I would buy his car, but
we didn’t put anything down in writing. Do we have
a contract?”
Verbal or Spoken Contracts are just as valid and binding
as written contracts. Verbal Contracts have the same
requirements as Written Contracts. Those requirements
are:
Both parties have to be competent - in other
words in the eyes of the law, you have to have
the ability to enter into the contract. Not
understanding the contract does not mean you
are incompetent;
The subject matter of the contract has to be set
out - in other words you need to know what you
are contracting for;
Legal consideration must be exchanged - for
example, you put a down payment on a vehicle
and/or you agree to pay a monthly amount and
the dealer gives you the car. You both get
something of value;
Mutual agreement - both of you must agree to
all the terms. If either one of you don’t agree to
a term, no contract is formed. If you don’t like a
term, but agree to it anyway a contract is
formed. For example, saying something like,
“Well, I don’t like the interest rate, but I’ll sign
anyway,” you are still agreeing to that term and
the contract. Do not sign the contract if you do
not agree to the terms.
Mutual obligations - in a contract to purchase a
car, the obligation on the dealer’s part would be
that they agree to sell you the car and your
obligation would be to make the monthly
payment.
The main difference between Verbal and Written
Contracts is that if something goes wrong, it is harder to
Some contracts must be written
Some contracts simply cannot be verbal and still be
enforced by the courts. Contracts that must be in
writing include those for agreements in consideration of
marriage, contract for the sale of land, a lease longer
than one year, an agreement that cannot be performed in
one year, a promise to pay a debt that has already been
discharged by bankruptcy, any agreement to extend
credit and a contract for a sale of goods over $500.00.
ORAL PROMISES AND WARRANTIES
“A used car salesman made me all kinds of promises about
the vehicle I bought which turned out not to be true.
When I tried to take the vehicle back, the dealer told me
that I had bought the car “As-Is.” What about the
promises the salesman made?”
Warranties are in general, promises made by the seller of
goods that those goods will have certain characteristics.
Warranties may be either express or implied, meaning
that the seller specifically told you or included in the
contract that he was giving you a warranty on the goods
(express) or that a warranty was provided under the law
(implied)
Express Warranties
An express warranty is a promise or guarantee by the
seller that the goods that you are buying will have
certain qualities. However, you must be careful of what
is considered an express warranty. The courts have
found that “puffing,” or just expressing an opinion on
the part of the seller, is not considered a warranty. For
example, if a car salesman says, “this is a top-notch car”
he will probably be held to be just puffing rather than
giving a warranty on the car.
A Collaboration of
Center for Arkansas Legal Services, Legal Aid of Arkansas & Arkansas Volunteer Lawyers for the Elderly
1-800-9 LAW AID or www.arlegalservices.org
June 2005
ALSP Law Series
DEFAULTING ON A CONTRACT
“What happens if I cannot make my payments?”
Implied Warranties
Implied Warranties are those warranties that are
imposed under the law. Generally an implied warranty
of merchantability means the goods do what they are
supposed to do. A warranty of fitness means that you
told the seller that the goods were needed to do
something specific, but they did not work for what you
needed. For example, if you ask the hardware store for a
chain to pull your car and it breaks, then the implied
warranty may have been violated.
However, like express warranties, implied warranties
may be disclaimed or waived. This means that the seller
will attempt to escape warranty liability by saying it
doesn’t apply.
Disclaimers or AS-IS Sales
When buying goods, such as a used automobile, the
salesman may make all kinds of statements about the
vehicle that may not be true. However, the contract you
sign will generally be “as-is.” This means there are no
warranties and the seller is not responsible for any
defects in the car, despite any verbal promises made by
the seller.
When one side to a contract cannot perform his
obligations, like making the payments, he can be
considered in breach of the contract. This is also
called defaulting on a contract. The other party to the
contract may sue you to collect his damages. In some
cases, such as automobile or mobile home financing, the
seller or financier may repossess the property and then
sue you for damages. The seller must sell the
repossessed property. However, you can be held liable
for the difference in the amount that you owe and the
amount that the repossessed property sells for, plus any
costs incurred by the seller. Cost may include storage
costs, repossession costs, attorney fees and court costs.
Some people believe if they can no longer make their
payments that they can return the property to the seller
and nothing can be done to them. This is not true.
You may still be considered in default. The seller or
finance company can follow the same procedures
described above. However, if you return the property,
you may have to pay less money in repossession costs.
Ways to avoid Default
If you sign a written contract after your verbal
negotiations with a seller and the written contract does
not include what you talked about in your verbal
negotiations, you probably will not be able to introduce
those prior verbal statements to contradict the written
contract. This is called the Parol Evidence Rule.
The only way to assure that you do not default is to
make sure that you can afford to buy the goods in the
first place. However, sometimes situations come up that
you cannot avoid. In those cases, you should contact the
HelpLine and talk to an attorney about your legal
alternatives. However, you need to do this as soon as
you can and not wait to call as the repossession people
are hauling your vehicle or goods away.
IT IS CRITICAL THAT YOU READ AND
UNDERSTAND ALL DOCUMENTS BEFORE YOU
SIGN THEM. DO NOT LEAVE ANY BLANKS IN THE
CONTRACT. MAKE SURE THAT WHAT YOU ARE
SIGNING CONTAINS THE AGREEMENT YOU
REACHED EXACTLY. IF NOT, DO NOT SIGN IT.
The Consumer Law Series is produced by the Arkansas Legal
Services Partnership, a collaboration of the Center for Arkansas
Legal Services, Legal Aid of Arkansas, Inc., and Arkansas Volunteer
Lawyers for the Elderly.
“Don’t I have a period of time to change my mind
and cancel the contract after I sign it?”
Arkansas law does not have any provision regarding a
“return period” for most goods. One exception is home
sales solicitations (door-to-door sales) in which you have
three (3) days after you sign the home-solicitation sales
contract to cancel. Otherwise, once you sign the
contract, it’s a done deal.
These nonprofit organizations provide free legal services to eligible
Arkansans who meet income, asset and other guidelines. Legal
services may include advice and counsel, brief services, or full
representation depending on the situation. Additional information
can be found at: http\\www.arlegalservices.org. To apply for
services, call 1-800-9LAW AID.
The information and statements of law in this fact sheet should not be
considered legal advice. This fact sheet is provided as a broad guide
to help you understand how consumer law matters are handled in
general. Courts may interpret the law differently. Before you take
action, talk to an attorney and follow his or her advice. Always do
what the court tells you to do.
Content Provided by the AARP
A Collaboration of
Center for Arkansas Legal Services, Legal Aid of Arkansas & Arkansas Volunteer Lawyers for the Elderly
1-800-9 LAW AID or www.arlegalservices.org