What is a Verbal Agreement?
A verbal contract is a form of an agreement that is the same as any other contract except that it exists only in spoken form and lacks any written element. Oral contracts rely on verbal descriptions of the contract terms stipulated by both parties and later validated by continued conduct.
Spoken agreements can be found in all walks of life, from ground floor business start-ups to common verbal agreements that exist in the home. These binding verbal agreements can take hold over a handshake, a nod, or even a wink. Verbal agreements are casual in nature and are often made with little or no planning. A form of handshake agreement, verbal contracts are not discussed in any detail nor completely explained by any third party. They are often misunderstood along legal lines and assumed to have little practical use; in fact, as seen from court cases, they are frequently used in business as well as interpersonal relationships.
Verbal contracts exist in both commercial and personal interests. They are most frequently used in situations between friends, co-workers or family members . Most often they are made verbally so the parties can proceed without delay while they wait for the paperwork to be completed. Common examples of verbal contracts in a business setting include: A rehearsal dinner planned by the wedding party, a loan of money from friend to friend, a sale of goods between vendors, and service contracts such as mowers, carpenters or electricians. In your personal life similar situations also occur and can include things like asking a neighbor to collect your mail while you are away, subleasing one of your apartments for the summer, or just renting a piece of equipment.
Courts have acknowledged the validity of verbal contracts for many years, and in some cases the law permits them when written contracts should have been the norm.
In Washington State, verbal contracts are recognized as legally enforceable, and the courts will base their rulings on the principles of fairness and conduct, which are the same as those that govern written contract disputes.
Are Verbal Agreements Enforceable in Court?
Although the general rule of thumb with verbal contracts is that they are not legally binding, there are several conditions under which they can be considered a valid agreement. In the following section we will take a closer look at when a verbal contract might be legally binding, and how a Judge or Jury determines whether or not it should be upheld. In legal circumstances, a verbal contract must meet a general set of requirements in order to be legally binding. For example, the contract must be in place between two people who have the requisite legal capacity, and it must be agreed upon by both parties equally. Both parties must agree to prosecute a benefit from the contract, and for a contract to hold up in court, it must be proven that an actual agreement was made. Contracts that are based upon fraud or deceit will not be legally enforceable, and if the agreement is made under duress or under undue influence, it too will not be valid. The general rule of thumb, as stated earlier, is that verbal contracts are not legally binding. However, when the fundamental aspects are still met, the contract could be enforced. To give the court a better chance of upholding the agreement, it is suggested that the plaintiff provides documentation that supports the existence of the agreement (messages, contacts, policies, etc.). When enforcement does not happen, generally the defendant has some form of defence to show. Supervising agreements in a Court of Law with the help of evidence and witnesses is what makes verbal agreements legally binding.
Elements of a Verbal Agreement That Could Make It Legally Binding
To determine what constitutes a legally binding verbal contract, we will now look at the essential elements that may be required:
Offer – A vital part of any contract, it can be evidenced by just one party making a positive statement indicating what they intend to do. For example, if you were purchasing a car, the vendor would say "I will sell you this car for £4,500".
Acceptance – Acceptance of an offer to form a contract can occur in a number of ways, but is typically created when one party expresses agreement such as this: "I agree to buy your car for £4,500". Silence is not an appropriate method of acceptance, however. There must either be a positive and explicit acceptance or an equally explicit performance.
Consideration – The effort or incentive that will compel each party to fulfil their side of the contract. Any monetary aspect is considered consideration, but it must be pertinent to the contract (i.e. "I’ll give you £10 for your pen" would not be considered consideration, as the pen is worth considerably more).
Intention – Each party must have a mutual intent to create a contract. For instance, if the terms of the contract were not serious, but rather said in jest, there would be no intention to create a contract. For example, if someone says "I will sell you my house for £1" as a joke, there is no mutual intention to create a contract. The mutuality can be implicit or explicit; however, it is important that everyone fully agrees with the contractual obligations of each party. More often than not, reviewing contracts is beneficial to ensure that the terms are fair, reasonable and can be fully adhered to by both parties. Without equal intentionality, it is unlikely that a contract will be binding.
Capacity – Typically any person aged over the age of 18 has legal capacity. If one of the parties is a company, it should have been established under the Companies Act 2006 and have the power to enter into a contract (for example, it may be registered to purchase property).
Problems with Verbal Agreements
That said, the burden of proof can be considerable when it comes to the enforcement of verbal contract terms. In legal parlance, the matter of evidence is always a hot topic when it comes to verbal agreements. Typically, whether or not a verbal contract has been breached becomes a he-said-she-said environment. Fortunately regarding this type of legal matter, there are several types of evidence that may be used to support a verbal contract, namely any sort of electronic form of communication. Verbal communications can easily be documented by email, text message or another such method where the communication can be backed up, so to speak. If the communication concerned the negotiated terms of the contract or the substance of the agreement, then it may be valid as evidence. The courts will consider any other documents or communications that speak to the substance of the agreement, whether it be a payment request, a receipt or invoice. Any conduct by the parties will also be closely reviewed regarding the enforcement of a verbal contract, and if so desired, witnesses may even be called to testify regarding behaviors and actions relative to the contract. It is worth noting that while not necessarily equal in value, circumstantial evidence is a viable alternative to use in lieu of direct evidence that speaks to the existence of a verbal contract. Circumstantial evidence may actually carry more impact regarding the enforcement of the verbal agreement. In addition, it cannot be emphasized enough how critically important witnesses can be to the success of verbal contract agreements. Witnesses have been proven to be the cornerstone of many verbal contract cases. A third-party witness who is able to confirm the words spoken between the parties is invaluable to any verbal contract dispute.
Times when a Verbal Agreement May Not Be Enforceable
When might verbal contracts not be binding? There are some categories of contracts that the law requires be put in writing. One such example is in real estate transactions. As a basic rule, all agreements concerning the conveyance of real property, or an interest in real property, must be in writing to be enforceable. For instance, if someone tells you over the phone that he wants to sell you his car for $5,500, that is not legally binding, nor is anyone required to go through with this transaction. By contrast, if the same person emailed you the same message, or even sent you a text message, then the transaction could very well be enforceable.
Another example of a contract that must be in writing is any contract that cannot be completed in less than one year. That is , if someone signed a contract to do work in 2023 (whether it is a two-day job or a six-month job), it does not have to be in writing. But, if someone signed a contract to do the work in 2019, that is a contract that must be in writing. In short, it is all about when the promised action must take place.
Additionally, there are some specific contracts that must be in writing, such as:
Agreeing to marry someone
Selling real estate or paying off real estate
Selling goods for $500 or more or selling services worth $500 or more
Agreeing to loan money of more than $100,000
Agreeing to do work worth more than $500 which takes longer than a year
Giving power of attorney to someone
How to Make a Verbal Agreement More Likely to be Legal and Enforceable
The best way to make an oral contract enforceable is to take what steps you can to turn it into a written contract. You can do this by getting the other party to agree to the terms in an email or by following up with a written message that states that you are confirming the terms of your verbal agreement. You can also turn to the "seven C’s of effective business writing," which include writing your verbal agreement to be clear, concise, concrete, correct, coherent, complete, and courteous. Keep a record of all your conversations and text messages about the contract so that you could later use that evidence in court if your verbal contract is broken. If you have any witnesses who can testify to the verbal contract, get written statements from each of them.
Final Word: How to Make Sure Your Agreement is Recognized
In conclusion, while verbal contracts or spoken-for agreements are legally binding, there are a number of exceptions that may void a verbal agreement. Also, an oral contract can prove difficult to enforce. There are a variety of circumstances in which a verbal contract is no longer legally binding. Because the formation and enforceability of oral contracts is often a complex matter, attempting to interpret the verbal agreement based on the circumstances or spoken terms is often easier said than done . In situations in which interpretation of an oral contract is unclear in any manner, or there is likely to be dispute on the agreement, it is highly recommended that individuals speak with an attorney who specializes in the area of law relevant to the oral contract before agreeing to the terms of the contract.
