Is a Verbal Contract Legally Binding

A verbal contract is legally binding if it meets three requirements: 1) an offer was made, 2) the offer was accepted, and 3) there was a consideration which means something of value.

Author: Brad Nakase, Attorney

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Verbal Contract Example

It is the height of summer, and Chris’ lawn is completely overgrown. Sadly, his beloved lawnmower has just broken down, and he needs to buy a new one. While driving through the neighborhood, he stops at a garage sale where he sees a lawnmower for sale. He tells the owner that he would like to buy it, but that he is on his way to pick up his child from daycare. He wonders if he can pick it up the next day. The owner, Jeff, asks for the $200 upfront, which Chris provides. However, the next day, Chris is stunned to find that the lawnmower is no longer there as promised. Jeff explains that he received a better offer and sold it to someone else. Furious, Chris insists that they had a verbal contract, which Jeff broke. He wonders if he can take the man to court, and whether a verbal contract is legally binding.

What Is a Verbal Contract?

A verbal contract is a variety of business agreement that is created and agreed to by spoken communication. Critically, its terms and conditions are not written down. While it can be hard to prove the terms and conditions of an oral contract if a breach occurs, this type of contract is still legally binding.

Verbal contracts are typically considered to be as legitimate and valid as written contracts. However, the truth of this often depends on the specific jurisdiction and the type of contract. In some jurisdictions, certain kinds of contracts need to be written down to be considered legally binding. For instance, a contract involving the transfer of real estate must be written down for it to be considered legally binding.

Example: Mindy is excited to purchase her first house. She is buying a two-bedroom bungalow from Dave, who is eager to get the property off his hands. Dave does not want to deal with the hassle of lawyers or contracts. Instead, he asks for $500,000 in cash, no inspection, and a handshake to seal the deal. In this case, Dave’s verbal contract is legally unenforceable. For real estate deals, there must be a written contract.

In certain cases, a verbal contract can be considered legally binding, but only if it is evidenced by a written contract. This means that after the verbal contract has been agreed upon by the involved parties, the individuals involved must write down the terms of the contract. Other evidence that can be used to increase the enforceability of a verbal contract include witness testimony – confirmation from people who were present at the creation of the contract. When either party, or both parties, act on a contract, this performance can count as evidence that the contract existed. Also, letters, memos, receipts, bills, emails, and faxes all qualify as evidence that can support the enforceability of a verbal contract.

Example: Eugenia is the owner of a bridal salon where she sells custom wedding dresses to brides. When Lydia comes into the shop to buy a wedding dress, Eugenia explains that it will cost $2,000 to sew the dress, and that this money must be paid once the dress has been completed. The women agree verbally to the terms of the contract. Halfway through making the dress, Eugenia receives a call from Lydia, who says that she has chosen a gown from another salon and will not be paying for Eugenia’s. However, Eugenia has already invested money and materials into the creation of her gown. When Eugenia insists that the two had a contract, Lydia responds by saying that there is no proof of their agreement. Luckily for the shop owner, there is. Eugenia’s assistant was present at the time of the agreement, and as a witness she can vouch that the two women shook hands on the deal.

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.

Summary

Verbal contracts are best used for basic, simple agreements. If a contract is simple, then it is less likely that the parties will choose to go to court. However, for more complex contracts, such as those involved in employment, it is best to get it in writing.

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