Is A Verbal Agreement Legally Binding?
A verbal agreement is binding when there are witnesses and documents to meet the elements of a valid contract.
A verbal agreement is binding when there are witnesses and documents to meet the elements of a valid contract.
By Brad Nakase, Attorney
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Although it is possible for a verbal agreement to be binding, not all types of contracts can be created verbally and upheld. Despite being harder to enforce, verbal contracts can be legally binding if they have the elements of a valid contract.
When an individual agrees to perform a certain service or deliver a specific good, he or she is generally expected to do so. However, even if people expect the task to be completed, is the individual legally obligated to do it?
When parties reach an agreement and do not provide any written documentation of the contract, they create what is known as a verbal agreement. It may also be known in a formal sense as an oral contract. However, the authority, or power, of verbal agreements forms somewhat of a grey area in the field of contract law.
The majority of verbal agreements, or contracts, are legally binding. This means that they are enforceable by a court of law. That said, there are notable exceptions, and these depend on the structure of the agreement and the intent of the contract. Often, it is best to form a written contract to avoid legal disputes about the terms of existence of a verbal contract.
For example, employers, employees, and independent contractors might find it critical to record the terms of their contracts in an Employment Contract or Service Agreement. While a verbal agreement may be binding, it can still be difficult to prove its validity in a court of law. For more information, please get in touch with our California business litigation attorney for breach of contract for a free consultation.
There are generally between four to six major elements for a verbal agreement to be binding. Some legal sources group elements under the same title. The six important elements of a verbal agreement to be binding are the following:
In order for a verbal contract to be legally binding, the elements of a legitimate contract must be included. To demonstrate how the elements of an agreement create binding terms in a verbal contract, let us use the example of Lucy, who is borrowing $300 from her friend to have her laptop fixed.
If a verbal agreement lacks one or more of the elements need to make a valid contract, then a court will probably rule that the contract is not binding. Many states provide regulations that state certain contracts must be in writing. They thereby deem verbal agreements insufficient in certain circumstances.
These rules vary depending on the state. However, in general, a written contract is necessary in the following situations:
It is important to check one’s state laws or Statute of Frauds to check whether a written agreement is needed or not.
While verbal contracts are technically legally binding, there is always the chance that a party does not perform their obligation. This is the reason why many people choose to have their agreements put in writing.
Let’s say that Harry borrows $10,000 from his uncle George so that he can buy a new car. George agrees, but he asks that Harry pay him back within three months. The two men shakes hands on a verbal agreement thinking it is binding. However, when Harry does not pay his uncle back within the time allotted, George threatens to take his nephew to court.
To win a verbal agreement lawsuit, Uncle George would have to provide evidence that his nephew borrowed the money with the promise to pay it back within three months. Harry, by contrast, would have to prove that he never agreed to those terms. When there is no written documentation of the contract, the case can become a matter of “he said, she said.” A judge will decide which party’s case is the more likely.
While Uncle George can prove that he loaned his nephew $10,000 through the use of bank statements showing money transfers, he still does not have sufficient evidence of the promise to pay the money back. Harry may even deny that he made the promise to pay it back, which would be perjury.
If there is no witness to the verbal agreement, such as the handshake, then Uncle George may lose $10,000.
It is always a good idea to document verbal agreements in writing. Receipts or promissory notes can be extremely valuable in the event that someone fails to pay money back. Any written documentation makes a potential verbal contract dispute much easier to resolve.
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