The general rule in New Jersey is that oral contracts are enforceable unless a specific law, called a Statute of Frauds, requires them to be in writing. This article will discuss when you can sue for non-payment on an oral contract, and why a written agreement is always preferable when collecting accounts receivable.
When Can You Sue For Non-Payment On An Oral Contract?
In New Jersey, there’s no Statute of Frauds on an agreement for services. As a result, you can sue for non-payment on an oral contract, as long as you can prove its terms.
For a sale of goods, however, an oral contract is generally unenforceable. To sue for breach of contract, an order totaling $500 or more requires a signed writing that indicates there’s a contract and specifies a quantity sold.
You can satisfy this with a signed agreement that specifies quantity, or with a signed purchase order that specifies quantity and indicates a contract exists. You can also send a confirmation of sale for the customer to sign.Â
Yet the law makes exceptions. An oral sales contract is enforceable if
- the customer already received and accepted the goods;
- the customer paid for the goods;
- the goods are specially manufactured for the customer and unsuitable for sale to others; or
- the customer admits there was a contract during the lawsuit.
Also, if the customer is a merchant of the type of goods involved (like a manufacturer selling to a wholesaler), sending a confirmation of sale within a reasonable time creates an enforceable contract if the customer fails to object within 10 days.Â
Why Are Written Contracts Better For Collecting Accounts Receivable?
Even if an oral contract is enforceable, it presents practical challenges you want to avoid. First, you’re more likely to have a dispute over an oral contract, because you might disagree on what the actual agreement was. Second, if you have to sue for non-payment, a written contract is strong evidence of your terms, while an oral contract can be harder to prove.
For more information on collecting accounts receivable and when you can sue for non-payment, or if you’d like to discuss a specific collection issue, call me at 856-667-1669 or contact me here.
This material is for informational purposes only and should not be construed as legal advice. No person should rely on this information without seeking the advice of an attorney.