More Than a Promise: Why a Memorandum of Agreement Is a Business Safeguard That Trust-Based Agreements Can Never Replace
In business operations and commercial negotiations, speed and trust are often the first factors entrepreneurs considering. As a result, many business transactions conclude with a “verbal agreement” or what is commonly referred to as a “Agreement based on trust” relying primarily on personal relationships instead of a written memorandum of understanding.
Although the Civil and Commercial Code provides that a contract is formed once an offer and acceptance correspond without always requiring a written document in practice, conducting business without documentary evidence is like taking hidden risks.
Today, we will analyze why a “Agreement based on trust” is insufficient in the business world and why a written contract is indispensable.
- The Trap of the “Burden of Proof” in Legal Proceedings
In theory, a verbal contract may be legally enforceable. However, when a dispute arises, the greatest challenge is proving the facts. Courts are not present at the time the agreement is made. Testimony from witnesses generally carries less weight and credibility than documentary evidence. If the counterparty distorts the agreed terms or denies responsibility, the absence of written evidence places the injured party at a significant disadvantage. A written contract serves as concrete evidence that closes loopholes in argument and enables the court to determine the facts accurately.
- Legal Limitations That “Gentlemen’s Agreements” Cannot Overcome
In reality, the law expressly requires certain juristic acts to be evidenced in writing; otherwise, they cannot be enforced in court or may even be void. For example:
- Loans exceeding 2,000 Baht must bear the borrower’s signature to be enforceable.
- Hire-purchase agreements (such as vehicles or machinery) must be made in writing, otherwise they are voided.
- Sale of immovable property (real estate) must be made in writing and registered with the competent official.
Therefore, in many transactions, a written contract is not merely optional it is a legal necessity for validity and enforceability.
- The Illusion of “Digital Evidence”
In the modern era, some may argue that business discussions conducted via chat applications or bank transfer slips can serve as evidence. While this is correct under electronic transactions law, chat messages often lack legal precision and detailed terms. They typically omit critical provisions such as penalties for late performance, scope of responsibility, or limitation of liability precisely the issues that become crucial when disputes arise.
A comprehensive written contract that clearly sets out these conditions provides far greater security and coverage than relying on fragmented conversations within an application.
Transitioning from a “Agreement based on trust” to a written contract does not signal distrust. Rather, it reflects professionalism in risk management. Clear rules preserve long-term relationships, reduce the likelihood of disputes, and ensure business stability.
If you are concerned about agreements previously made verbally or wish to establish a standardized contract system for your business, Prom Legal Solution is ready to assist. Our experienced legal team specializes in drafting and reviewing business contracts, with careful attention to your specific business context, ensuring your agreements serve as the strongest possible protection for your interests.
Feel free to contact us to schedule an initial consultation.
Note: The illustrative image in this article was generated by AI for content purposes only.
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