Example Verbal Contract
Eliana has recently been applying for a new job. She finds a sales position in Sacramento, and after speaking with the employer, she is eager to work at their office. The employer, Ted, appears impressed with Eliana’s resume, and he promises her the job. Specifically, he says, “I really like your experience and attitude, and would love to work with you. Can you start on the fifth of next month?” Eliana happily agrees, and she moves her family from Los Angeles to Sacramento the next week. However, she then receives a call from Ted, who says, “Sorry, we found someone better suited for the position.” Eliana is shocked and feels betrayed. It sounded as though Ted had guaranteed her the job. She thought that they had effectively signed a verbal contract. She worries that because the promise was not made in writing, the employment contract is not enforceable. She wonders if verbal contracts are enforceable in the state of California.
What Is a Verbal Contract?
Though it may surprise residents of California, oral or verbal contracts are in many cases completely enforceable under state law. However, it is true that the California Civil Code is clear in prohibiting certain kinds of contracts from being sealed verbally. In those specific cases, the contracts must be in writing to be enforceable. That said, beyond those exceptions, which will be discussed in full below, verbal contracts may be enforced in the state of California.
The issue with verbal contracts is that the terms must be demonstrated by oral testimony instead of a written document. Often, individuals have difficulty recalling what was agreed, or they simply lie if it suits their purposes. The accepted rule is that it takes twice the time to prove the terms of a verbal contract than a written one, and costs three times as much to do so. So, due to its simplicity, a written contract is always preferred to a verbal contract.
Despite its drawbacks, there is nothing that prevents a verbal contract from being enforced. It is simply harder to prove. Only in certain circumstances are they prohibited in courts and not counted as a legitimate substitute for a written agreement. One should not confuse an oral contract’s ability to be enforced with the Parol Evidence Rule. This rule specified when verbal testimony can be used to prove or disprove a written agreement.
It is also important to remember another difference. “Express contracts,” as they are called, are verbally agreed upon contracts. “Implied contracts” are those assumed, or inferred, by the behavior of the involved parties. This difference is expressed in Civil Code Section 1619. For clarity, we will review the Code’s interpretation of the subject:
- A contract is either express or implied.
- An express contract is one, the terms of which are stated in words.
- An implied contract is one, the existence and terms of which are manifested by conduct.
But how is conduct defined? This can be any action, or lack of action, that demonstrated to a court that an agreement was reached. An example of this would be if a person provided a contractor with the materials, tools, and access to his house for a construction job to be done. A typical oral contract would be if the person told the contractor what they intended to pay for the work, and the contractor agreed to the arrangement.
What Is the Basic Law of Oral Contracts?
Under California law, verbal contracts are permissible. Their legitimacy may be found in Civil Code Section 1622, as provided below:
- All contracts may be oral, except such as are specially required by statute to be in writing.
Also, if an individual or party tricks another into not having a written contract, then an oral contract may be enforced. This is the case even if the contract in this situation should normally be in writing. This rule is enforced under Civil Code Section 1623, as quoted below:
- Where a contract, which is required by law to be in writing, is prevented from being put into writing by the fraud of a party thereto, any other party who is by such fraud led to believe that it is in writing, and acts upon such belief to his prejudice, may enforce it against the fraudulent party.
As stated previously, there are some contracts that must be put in writing to be counted as legitimate. These specific types of contracts are listed in Civil Code Section 1624, as quoted below:
- (a) The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent:
- An agreement that by its terms is not to be performed within a year from the making thereof.
- A special promise to answer for the debt, default, or miscarriage of another, except in the cases provided for in Section 2794.
- An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.
- An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission.
- An agreement that by its terms is not to be performed during the lifetime of the promisor.
- An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased, unless assumption of the indebtedness by the purchaser is specifically provided for in the conveyance of the property.
- A contract, promise, undertaking, or commitment to loan money or to grant or extend credit, in an amount greater than one hundred thousand dollars ($100,000), not primarily for personal, family, or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or extending credit.
What qualifies as personal, family, or household purposes? For this section of the law, one should understand a contract, promise, undertaking, or commitment to loan money secured solely by residential property to refer to one to four dwelling units.
The above law has a number of exceptions, which are typically received by special interests or market requirements. For example, verbal contracts are allowed in the sale of commodities and precious metals, as well as currency options. Subsection b of Section 1624 further address this issue, stating the following:
(1) An agreement or contract that is valid in other respects and is otherwise enforceable is not invalid for lack of a note, memorandum, or other writing and is enforceable by way of action or defense, provided that the agreement or contract is a qualified financial contract as defined in paragraph (2) and
(A) there is, as provided in paragraph (3), sufficient evidence to indicate that a contract has been made or
(B) the parties thereto by means of a prior or subsequent written contract, have agreed to be bound by the terms of the qualified financial contract from the time they reached agreement (by telephone, by exchange of electronic messages, or otherwise) on those terms.
(2) For purposes of this subdivision, a “qualified financial contract” means an agreement as to which each party thereto is other than a natural person and that is any of the following:
(A) For the purchase and sale of foreign exchange, foreign currency, bullion, coin or precious metals on a forward, spot, next-day value or other basis.
(B) A contract (other than a contract for the purchase of a commodity for future delivery on, or subject to the rules of, a contract market or board of trade) for the purchase, sale, or transfer of any commodity or any similar good, article, service, right, or interest that is presently or in the future becomes the subject of a dealing in the forward contract trade, or any product or byproduct thereof, with a maturity date more than two days after the date the contract is entered into.
(C) For the purchase and sale of currency, or interbank deposits denominated in United States dollars.
(D) For a currency option, currency swap, or cross-currency rate swap.
(E) For a commodity swap or a commodity option (other than an option contract traded on, or subject to the rules of a contract market or board of trade).
(F) For a rate swap, basis swap, forward rate transaction, or an interest rate option.
(G) For a security-index swap or option, or a security or securities price swap or option.
(H) An agreement that involves any other similar transaction relating to a price or index (including, without limitation, any transaction or agreement involving any combination of the foregoing, any cap, floor, collar, or similar transaction with respect to a rate, commodity price, commodity index, security or securities price, security index, other price index, or loan price).
(I) An option with respect to any of the foregoing.
To figure out whether the above exception applies to various kinds of transactions, one would be best advised to seek experienced legal advice. One should keep in mind that the above subsection of the Civil Code does not generally apply to the typical consumer.
Also, one should remember that this section of the Civil Code is constantly changing due to the advent of the internet. The law must learn how best to rule on the enforceability of contracts created via electronic methods. The internet affects every aspect of modern life, and many contracts are now made online. This fact changes the ancient notion of “in writing.” As a result, the following law has been passed in an attempt to address the problem:
Civil Code Section 1624
(3) There is sufficient evidence that a contract has been made in any of the following circumstances:
(A) There is evidence of an electronic communication (including, without limitation, the recording of a telephone call or the tangible written text produced by computer retrieval), admissible in evidence under the laws of this state, sufficient to indicate that in the communication a contract was made between the parties.
It should be noted that the parties’ actions after the verbal contract can enforce a contract that would normally have to be expressed in writing. In Civil Code Section 1624 (B), such a contract is enforceable if the following is true:
(B) … A confirmation in writing sufficient to indicate that a contract has been made between the parties and sufficient against the sender is received by the party against whom enforcement is sought no later than the fifth business day after the contract is made (or any other period of time that the parties may agree in writing) and the sender does not receive, on or before the third business day after receipt (or the other period of time that the parties may agree in writing), written objection to a material term of the confirmation. For purposes of this subparagraph, a confirmation or an objection thereto is received at the time there has been an actual receipt by an individual responsible for the transaction or, if earlier, at the time there has been constructive receipt, which is the time actual receipt by that individual would have occurred if the receiving party, as an organization, had exercised reasonable diligence. For the purposes of this subparagraph, a “business day” is a day on which both parties are open and transacting business of the kind involved in that qualified financial contract that is the subject of confirmation.
If one of the parties admits that a contract was indeed made, then it is not necessary to have it in writing. This is expressed in Civil Code Section 1624 (C):
(C) The party against whom enforcement is sought admits in its pleading, testimony, or otherwise in court that a contract was made.
Finally, a piece of writing that is not included in a contract but has been signed by the individual or party denying it, may form a legitimate contract even if the original contract was verbal. This rule is expressed in Civil Section 1624 (D), printed as follows:
(D) There is a note, memorandum, or other writing sufficient to indicate that a contract has been made, signed by the party against whom enforcement is sought or by its authorized agent or broker.
The above law has also lessened the amount of information that is needed for electronic communications to form a written contract. Civil Code Section 1624 expresses this rule as follows:
For purposes of this paragraph, evidence of an electronic communication indicating the making in that communication of a contract, or a confirmation, admission, note, memorandum, or writing is not insufficient because it omits or incorrectly states one or more material terms agreed upon, as long as the evidence provides a reasonable basis for concluding that a contract was made.
This law now goes even further, allowing for electronic signatures on forms to create a written binding contract. This is similar to the Federal Law on the same issue. As expressed by Civil Code Section 1624 (4), it allows for computer information to be made into a written contract:
CC 1624 (4) For purposes of this subdivision, the tangible written text produced by telex, telefacsimile, computer retrieval, or other process by which electronic signals are transmitted by telephone or otherwise shall constitute a writing, and any symbol executed or adopted by a party with the present intention to authenticate a writing shall constitute a signing.
The quoted sections of the California Civil Code above are only a fraction of the laws related to the enforcement of contracts. Regardless, if an individual or party believes that a binding verbal agreement was at any point made, then he or she would be advised to see experienced legal counsel. A lawyer will be able to determine whether there is a case to be made.
California courts do not like fraud, and they are more likely to enforce a contract if they feel that one party fooled the other into believing a promise.
That said, written contracts are always best, due to the difficult of proving a verbal contract. Therefore, the best advice is to always try to get agreements in writing. But do not despair id you cannot and are left with only a verbal agreement. In this case, there is recourse, and an oral contract may be legally enforced.