A verbal agreement can be legally binding, but proving its existence requires strong evidence like correspondence, witness testimony, or performance records. Written contracts remain the best way to prevent disputes and ensure enforceability in legal proceedings.
By Brad Nakase, Attorney
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It is necessary to establish the existence of a verbal contract before it can be enforced. If there is no formal contract to prove the parties’ agreement, you can use other forms of proof, like:
Although not insurmountable, establishing the existence of a verbal agreement is not always easy. The more proof you can collect, the better off you will be.
Contrary to what many business owners believe, a verbal contract can in fact be legally binding.
The problem with verbal contracts is not the issue of their legality, but the fact that they are so hard to back up in court. In a perfect world, when two parties commit to a written contract, it would spell out exactly what each side is responsible for. Although the other party might argue that they didn’t break the agreement, it will be hard for them to say they never made it in the first place. If one party to a verbal contract disputes its existence, the other must provide compelling proof of the agreement in order to enforce its terms.
For the sake of legal enforceability, it is necessary to put some contracts in writing. These include the following kinds of contracts:
All agreements related to these kinds of transactions must be in writing in order to be legally binding.
There are situations in which a verbal modification to a written contract can, in fact, take precedence over the terms of the initial agreement. With the exception of any verbal modifications made by the parties, the written contract will continue to be in effect.
Consideration is required for any variation. “Consideration” is defined as “anything of value” that the parties trade in a contract. As part of any agreement, each side must offer legitimate value to the other. A sale of goods contract, for instance, would have the vendor pledging to supply the items and the purchaser pledging to cover their cost.
When one party agrees to accept more or different obligations under a written contract verbally, this is known as a variation. It would appear that the variation would be unsuccessful due to a lack of consideration. When it comes to this issue, the courts are not too strict. As long as the other party gets some kind of practical benefit from the first party’s performance of their obligations, that performance can be considered valid consideration, unless the first party got the variation through economic duress or fraud. This practical benefit can simply mean helping them save time or avoiding the trouble of getting a replacement.
Modifications to business contracts are often required to be in writing and signed by both parties. If you plan to depend on a verbal variation, it’s important to review your contract for this term. If it’s there, the court will probably uphold the clause, rendering your variation unenforceable. To avoid the problems with proving the existence and terms of a verbal agreement, it is always a good idea to put any changes to your contract in writing, even if your contract doesn’t specifically require it.
While it’s true that verbal contracts can be legally binding, there are a number of problems that arise when compared to written contracts. These include the following issues:
A well-written contract will spell out the responsibilities and rights of each party. In contrast, the nature of verbal agreements is often vague, making it difficult to prove the full scope of each party’s responsibilities.
The parties might have different interpretations of what was agreed upon. When parties negotiate a written contract, they have a chance to clarify their grasp of the terms and address any confusion. Even if you are accepting the standard terms and conditions of the other party, you have the ability to read them beforehand and ask any questions that come to mind before you sign. Verbal contracts are unfortunately not often given the same level of consideration as written ones. Misunderstandings are more likely to arise in contracts made via informal means, such as a handshake or over the phone.
Avoid problems and disputes that might arise from verbal agreements by putting a written contract in place. A well-written contract will spell out the terms and conditions under which the parties will conduct business. The best course of action is to have commercial solicitors draft the contract on your behalf. You can then be sure that it is unambiguous, clear, and defends your position.
A verbal agreement needs to meet the standards for all contracts in order to be legally enforceable. They are described below:
When deciding whether or not a party’s statements constituted an agreement, the courts use an objective standard, asking what a reasonable person would have thought. Even though it is possible to create a legally enforceable oral contract in a social context, it’s highly unlikely that a discussion at a bar would pass muster.
For a verbal agreement to be valid, the party seeking enforcement must be able to demonstrate that the agreement meets the aforementioned preconditions. To establish legal relations when a written contract is not available, the court must find proof of an offer, an acceptance, consideration, and an intent to do so. The parties’ actions, statements from witnesses, and correspondence are all possible formats for this evidence.
If your verbal agreement is legally binding, then the answer is yes. But unlike with written agreements, it is very difficult to enforce an oral contract.
In the event that one party fails to fulfill their responsibilities as outlined in a written agreement, the document itself will serve as the most important proof. Properly drafted business contracts should meet the criteria for a legally enforceable agreement, even though there may be disagreements regarding the meaning of the provisions.
The enforcement of verbal contracts, however, is fraught with extra complications. They need to prove to the court that there is a valid contract before anything else can happen. They will have to prove its terms afterwards. Assessing whether the other party’s behavior constituted a breach of contract requires the Court to be satisfied that the parties have entered into a legally binding agreement and to have a clear understanding of its terms.
You need to prove these things in order to enforce a legal agreement:
For reasons already mentioned, the burden of proof is on the party seeking enforcement when it comes to claims based on verbal contracts.
When one party wants to make sure the other party fulfills their end of an agreement, the first thing to do is have a conversation about it. You should consult a lawyer if they still refuse.
As a first step, your lawyer will likely write a letter to the opposing party outlining the problem and the measures they need to take to prevent legal action. People are more likely to pay attention and fulfill their responsibilities after receiving a lawyer’s letter. Your lawyer may recommend mediation or another form of alternative dispute resolution as a means to resolve the disagreement outside of court if they reject your claim. In certain cases, mediation can be more beneficial than going to court because it is less time-consuming and expensive.
Litigation should be considered if your disagreement remains unresolved after attempting other methods. Just because you file a claim doesn’t mean the judge will hear your case. Most cases settle out of court, and the lawyers representing the parties can keep working behind the scenes to reach an agreement.
Despite what many people think, verbal agreements can have the same legal force as written ones. However, they can be difficult to enforce and often require substantial proof. The best course of action is to have all business-related agreements documented in writing, ideally in the form of a contract that each party signs. That way, everyone involved knows their role in the agreement and there’s no room for confusion about the existence of the contract.
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