Does a Verbal Agreement Count as a Contract

Yes, a verbal agreement counts as a contract. Legally, a verbal contract is valid, as though it is a written contract with few exceptions.

Author: Brad Nakase, Attorney

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Verbal Agreement Example

On his way to work, Conor’s car breaks down on the side of the road. He has to get it towed to a repair shop, where the mechanic tells him that it will cost $2,000 to fix his car. With a week until his next paycheck, Conor needs to find the money right away. He calls his best friend, Joe, who agrees to lend him the money. However, Joe asks that Conor pay him back after he gets his next paycheck. After all, Joe says, I need to pay my rent. Conor accepts the terms of this verbal agreement, considering it an informality. He fixes his car and figures he will pay back his friend when it suits him. However, because Conor does not take the verbal agreement seriously, Joe does not get his money on time and as a result cannot pay his rent. Furious, Joe accuses Conor of breaking their verbal contract. Conor is shocked. He says that he does not believe their verbal agreement even qualifies as a contract and is therefore not enforceable. Still angry, Joe threatens to take his friend to court over breach of contract, insisting that a verbal agreement does in fact qualify as a legitimate contract.

What Is a Breach of Verbal Contract?

A verbal contract is an agreement between two parties to do something, sell something, or buy something. A breach of verbal contract happens when one of the parties fails to meet their obligations or otherwise does not comply with the agreed terms of the contract.

What Are the Elements of a Verbal Contract?

A verbal contract is a spoken agreement between individuals, or parties, that can be legally binding in certain circumstances. The major problem that comes with proving the existence of an oral contract is the lack of evidence.

Legal cases involving oral contracts often rely on the fact that the parties are obviously relying on the contract. Verbal contracts are best when they are simple agreements with easily comprehensible terms, armed with evidence proving they exist.

Every contract, be it verbal, written, or implied, must possess certain elements for it to be considered valid. These elements are as follows:

  • There needs to be an offer and an acceptance in which one party suggest an arrangement and the other accepts.
  • Both parties must give up something in exchange for the agreement.
  • Whatever is given up must have some value.
  • There needs to be mutual consent.
  • Both parties need to be aware that a contract is being created and must be aware of the terms.
  • There is no legitimate defense to enforcement of the agreement such as a minor filing suit or a lack of mental capacity.
  • If fraud or force is claimed, this can prevent the agreement from being enforceable.

If an individual acts on the statement, it does not mean a contract is legally binding, assuming the following applies:

  • A party agreed to do something illegal. A violation of local, state, or federal law cannot be enforced in a contract.
  • The terms of the contract are not clearly specified. The contract has to state a specific amount or action.
  • There was a misunderstanding regarding a key part of the agreement.
  • The terms or subject of the contract are unlawful. An example of this would be a real estate contract, which by law must be in writing.

Is It Possible to Sue Over the Breach of a Verbal Contract?

Even though it is not in writing, a verbal agreement qualifies as a contract. If the contract is legitimate and valid, then it counts as a binding agreement between businesses or parties. Certain oral agreements are technically enforceable, but they can be complicated to enforce due to the potential lack of evidence and information.

Enforcing a verbal contract often leads to “he said, she said” situations, which can be more difficult to validate due to a lack of evidence of agreements. This can easily become a battle between two parties, and therefore it is recommended to talk to a contract lawyer about having a contract in writing. It can also be helpful to have witnesses to offer confirmation or proof of the existence of the verbal contract or its terms. Witness testimony will be taken into consideration should the case ever proceed to court.

A court can encounter a complication when it must identify the key terms of a verbal agreement. This can be difficult to discern when the two parties do not agree on the terms of the contract. The two parties may not even agree that there was a contract at all.

The individual or party that wants the contract to be enforced has the hard job of proving the terms of the agreement in addition to the existence of the verbal contract.

A party seeking to provide proof has a few options. These include the following:

  • Provide evidence to the court of the plaintiff’s performance of services detailed in the contract
  • Provide proof of any money exchange showing a deal was made
  • Provide proof of a loan or payments
  • Provide a check written as a down payment or deposit
  • Offer witnesses who were present at the time the agreement was made
  • Provide documentation such as emails, text messages, and voicemails that support testimony

Enforcing a verbal contract is one of the more difficult types of cases because of the differing elements in each case and the lack of written evidence.  If a business owner is trying to sue another party regarding the breach of a verbal contract, he or she is advised to seek legal advice from a contract lawyer. This lawyer can review documents or the law on verbal contracts, providing professional advice on how best to proceed.

What Is the Statute of Frauds?

In certain circumstances, an oral contract may be unenforceable in a court of law. This occurs when the specific case falls under the Statute of Frauds. This law indicates several kinds of contracts that must be written down in order to be valid and enforceable. These contracts include the following:

  • Marriage
  • Transferring ownership of land or real estate
  • Contracts that cannot be performed within a year
  • Ensuring the debt of another party
  • Taking the role of executor of a will
  • The sale of goods greater than a certain value; the Uniform Commercial Code (UCC) rules over contracts involving the sale of goods

Example: Lewis is excited to build his dream home. All he needs is the land on which to start construction. A little way out of town, he finds the perfect spot, and he sees that a plot of land is on sale. He contacts the owner of the land, who says that he is willing to sell but does not want the hassle of a written contract. Rather, he wants to be paid in cash and to seal the contract with a handshake. Too excited to think straight, Lewis agrees. Later that week, he gives the owner the money for the land. Unfortunately, the owner rejects his payment, saying that he received a better offer from someone else. Lewis insists that they had a valid contract. However, when he takes the issue to court, he discovers that all real estate contracts must be written down. Therefore, his verbal contract with the landowner is unenforceable.

What Is the Statute of Limitations for Contracts?

The statute of limitations is the time limit within which a party can file a lawsuit against another party to get damages in the event of a breached contract. With verbal contracts, there is generally a shorter statute of limitations timeframe as compared to that for written contracts. This is because of the need for fresher evidence. After a certain period of time, parties and witnesses may not remember details as clearly, which can become a serious problem when there is no written evidence to consult.

Example: In need of a new car, Jeanine contacted a seller on Craigslist about purchasing a used 2005 Honda Odyssey. She and the owner, Ryan, talked over the phone about the deal. Jeanine agreed to pay $2,000 upfront in exchange for the car to be delivered the next week. Unfortunately, she later discovered that Ryan had sold the car to someone else, finding a better offer. Jeanine was angry, but she let the problem sit for a while. A year later, she learned that she could take the case to court over breach of contract. But because there was no written evidence of the deal, as well as no witnesses, much of the case relied on both Jeanine’s and Ryan’s recollections. Neither could remember the specific terms of their deal, leading to doubt over what really happened.

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