What Makes a Verbal Contract Valid

A verbal contract is valid when contractual elements are satisfied, such as evidence of an offer, acceptance of the offer, and consideration which is an exchange of value between the parties.

Author: Brad Nakase, Attorney

Email  |  Call (888) 600-8654

What Is a Verbal Contract?

A verbal contract is an unwritten but legally binding agreement between parties that includes all the regular elements of a contract and follows the Statute of Frauds. Oral contracts can be complicated because of the fact that they are not recorded in writing. If there is an argument about the terms of the contract or its existence, then there is no written record to study to solve the argument.

Rather, the terms of the agreement often have to be determined by testimony offered by the parties involved. Witnesses may also help reconstruct the terms of the contract, as well as the conduct of the parties after the deal was created.

Because most verbal agreements are created by trusting individuals, unfortunately, the arguments that result from breached verbal contracts tend to be emotional affairs.

Despite their drawbacks, verbal contracts are still used in California. Sometimes, this is due to business necessity, as can sometimes happen when a deal is struck and there is no pen or paper. Other times, parties may strike a deal and seal it with an unwritten “handshake.” Both situations rely on trust between the parties.

What Are the Elements of a Verbal Contract?

Although it is preferable to get a contract in writing, oral and verbal contracts are valid in the state of California. For a verbal contract to be considered valid and legitimate, it must contain te following three elements of an enforceable agreement:

  • An offer
  • An acceptance of that offer
  • Consideration

If any of the above elements is not present in an oral agreement, then the agreement is not legally binding and, thereby, there is no enforceable contract.

Also, verbal contracts must comply with the California Statute of Frauds. This statute provides that verbal contracts are not to be used in certain situations.

What Is the Offer?

The first element of a verbal contract is known as the offer. An offer happens when one party suggest terms that are clear enough for a reasonable person to understand and follow. Not all of the terms must be included for the contract to be enforceable by law. The only terms that must be included are those that are material, or important, for the particular contract. Such terms may include the following:

  • The parties of the contract
  • The services or goods that are to be provided
  • When the services or goods will be provided
  • The price

Sometimes, the person who is receiving the offer will reply with an offer of their own. That is, they might not accept the terms of the original offer and prepare a counter. Offers and counter-offers in verbal negotiations can happen quickly, sometimes within only seconds. The specific words used, and the context surrounding them, can make a difference. This is part of the reason why verbal contracts are hard to enforce. When parties dispute a verbal contract, they will often debate the precise wording of the offer, with one party claiming that no contract existed.

What Is the Acceptance?

The offer, in addition to any counter-offer, need to be accepted for there to be a legally-binding contract. Acceptance happens when a party agrees to the terms of the offer. With a verbal contract, acceptance can be very simple. In fact, it can be as simple as saying the following words:

  • “Agreed.”
  • “I accept.”
  • “Sure.”
  • “Let’s do it.”
  • “Sounds good, you’ve got a deal.”
  • “I don’t like it, but alright.”

As is the case with an offer, the specific phrasing of an acceptance can be important. If there is an argument between parties, then each party will provide their own version of what happened. It is very difficult to prove what actually occurred.

Many verbal agreements are often sealed with a handshake as a way of indicating that a deal has been reached. The handshake is a strong signal that the parties involved wish to be bound by the terms of the deal. That said, in a court of law, even a handshake can be disputed by a party trying to prove that no deal existed. In order to help show that a handshake occurred, it it helpful to have a witness to the event.

What Is the Consideration?

A legal term, consideration refers to the idea that both parties involved in a deal are giving up something in exchange for the contract. In most verbal contracts, the consideration will be the exchange of money for services or goods.

If only one side is offering something, then the agreement is likely a gift instead of a contract. If the agreement is a gift, then there is no valid contract that gives each side rights and obligations.

Are Verbal Contracts Enforceable by Law?

Verbal contracts between parties are enforceable by law in the same way that written agreements are, providing that they do not violate the Statute of Frauds. Similar to written contracts, oral agreements simply need to meet the requirements of a legitimate contract to be enforced by a court. If the contract meets the said requirements, then both verbal and written contracts are enforceable.

That said, it is far more complicated and challenging to prove the terms of a verbal agreement than a written one. When parties are arguing about a written document, the terms of the agreement may be found in a physical document for reference. However, when there is no document to refer to, it is harder to determine the rights and obligations of each party. The terms of the agreement, and whether or not there even was an agreement, must first be settled. This situation often turns into a “he said, she said” argument. Each side will present their version of events, trying to prove themselves more credible.

How Can a Verbal Contract Be Enforced?

Enforcing a verbal contract will depend largely on the particular circumstances of the case. That said, many cases involve the following elements:

  • The behavior of the parties following the creation of the alleged contract
  • Prior behavior between the parties
  • How similar agreements are normally conducted
  • Testimony of the parties involved
  • Witness testimony
  • Each party’s credibility

Evidence such as that described above will help a court determine the basic terms of the contract, as well as whether the contract was breached.

How Does One Prove the Terms of a Verbal Contract?

To prove the terms of a verbal contract, often there must be testimony from both parties as well as details of their conduct before and after the agreement was made.

It is true that the testimony often turns into a “he said, she said” situation, however any inconsistencies in one’s side story can be a sign they are not credible or reliable. This would provide evidence that an agreement was not structured the way they said it was.

In general, the behavior of the parties before and after the supposed contract is the most telling and is more reliable than any testimony. For instance, if one party paid the other, this acts as evidence that there was an agreement of some kind. If a good or service was provided sometime around this payment, then the terms of the verbal contract become a little clearer.

Other written documentation may prove useful, even if not an actual contract. For example, invoices, emails, letters, and text messages can offer indirect evident of a verbal agreement. Perhaps there was a text message asking, “when will the item be delivered?” This kind of message would show that one party believed there to be an agreement.

On occasion, a witness may be called to offer eyewitness testimony. Witnesses might include third parties who were present at the time a contract was established. Evidence may also be gathered from individuals who were unknowingly a part of the agreement, such as employees of one of the parties. These individuals can testify what they believed the agreement to be, if it existed, based on how their job duties changed before, during, and after the verbal contract was made.

As is evident, it can be quite complicated to determine the nature of a verbal agreement. Determining the details of the contract involved a lot of indirect and circumstantial evidence from many different sources.

What Is the Statute of Frauds?

When a verbal contract argument arises, one issue that may come up is the Statute of Frauds. The Statute of Frauds is a law that says certain type of contracts must be in writing in order to be enforceable. Under the California Statute of Frauds, the following types of contracts must be in writing to be enforced:

  • Agreements to pay from an individual’s estate
  • Agreements to answer for the debt of another individual
  • Agreements concerning marriage
  • Agreements for the sale of land or any interest in land
  • Any agreement that is not fulfilled within one year of the making of the agreement

If any of the above contracts is not put down in writing, then the contract is not enforceable by law. The same rule applies under the Uniform Commercial Code (UCC), which concerns the sale of goods over $500 in value.

The purpose of the Statute of Frauds is to prevent individuals from making up verbal agreements concerning important types of transactions. This protects innocent parties from being dragged into difficult disputes to protect their assets.

Are Verbal Amendments to Written Contracts Enforceable?

Sometimes, parties may agree to a written contract and then later decide to verbally amend it. In this situation, verbal modification to a contract is treated as any other verbal contract. In that sense, it has the same restrictions and enforcement problems as typical verbal contracts.

Many written contracts even have a clause that requires any amendments be made in writing. Individuals should be aware of this potential provision because such a clause can make verbal modifications unenforceable. Such a clause would protect the rights and obligations of the original contract.

Sometimes, there may be a verbal change to a written contract, however the original contract falls within the Statute of Frauds. In this rare instance, oral modifications to the original contract may be enforced, but only if the verbal change regards the performance of the contract rather than a material term. If the verbal change addresses a material term of the written contract, then it will not be enforceable in court.

What Happens If a Verbal Contract is Unenforceable?

If a verbal contract is deemed to be unenforceable, or if it violates the Statute of Frauds, this is not necessarily the end of the road. While an individual may not be able to enforce the terms of the original contract, he or she might be able to pursue an “equitable” solution in court.

An equitable remedy is similar to a promissory estoppel or unjust enrichment. It is a claim that value was given to the other party, and as a result, it is unfair for that party to have that benefit without paying for it. An attorney can provide proof of the value given to the other party, and an individual can seek monetary damages as compensation.

Please tell us your story:

2 + 1 = ?

See all blogs: Business | Corporate | Employment

What Is a Gap Analysis

What is a Gap analysis?

Gap analysis helps businesses compare current performance with desired goals, identifying inefficiencies. This method aids in developing action plans to bridge performance gaps.
SWOT Analysis Example

SWOT Analysis Example

Conducting an HR SWOT analysis helps identify strengths, weaknesses, opportunities, and threats within and external to an organization. This process aids in developing strategic HR actions aligned with the company's objectives.

Costco Hot Dog Price Story

The story about Costco $1.50 hot dog price began in 1993 when the Costco merged with Price Club. Costco's $1.50 hot dog price remains unchanged in 2024.

Request for Production of Documents, RPOD, CCP 2031.280

Starting January 1, 2020, California's civil litigants face stricter discovery rules under Cal. Civ. Pro. § 2031.280(a). All produced documents must now be labeled by request number, impacting both new and ongoing cases.
What is a default judgment

What is a default judgment

A default judgment is issued when a defendant fails to respond to a lawsuit, allowing the plaintiff to win by default. Understanding this process is crucial for both parties involved in litigation.
What is a quitclaim deed

What is a quitclaim deed

Quitclaim deeds offer a quick way to transfer property ownership without guarantees, distinct from warranty deeds. Ideal for non-sale property transfers among family or into trusts, they require careful legal consideration.
Sole Proprietorship Business License

Sole Proprietorship Business License

Sole proprietorships offer simplicity and fewer formalities for new business owners, with benefits like no separate taxes. Remember, personal and business assets aren't distinct, impacting liabilities and the need for proper licensing.
What is the most important part of your business plan

What is the most important part of your business plan

The executive summary shines as the pivotal element of a business plan, serving as a decisive factor for readers to delve deeper. A comprehensive guide on crafting an impactful business plan, focusing on unique strategies and essential components.
Easy Businesses To Start

Easy Businesses To Start

Unleash your entrepreneurial spirit with these straightforward home-based business ideas, from e-commerce to creative pursuits. Embrace the flexibility and potential for financial independence with diverse options suited for various interests and investment levels.
What is the standard deduction

What is the standard deduction

Understand the IRS standard deduction, a straightforward option for reducing taxable income without needing detailed documentation. Delve into eligibility, amounts for 2023-2024, and considerations for itemizing versus standard deduction.
How to get a business license

How to get a business license

Grasp the essentials of obtaining a business license in California, focusing on local and state-level requirements. Uncover specifics on when and why different types of business licenses are needed.
Why Do Businesses Fail

Why Do Businesses Fail?

Uncover the key factors contributing to small business challenges, including financial obstacles, inadequate management, and flawed marketing strategies. Understand the role of a comprehensive business plan in ensuring long-term success.
What is a BOC 3

What is a BOC 3

Understand the essentials of a BOC-3 filing for transportation businesses in California, detailing the designation of process agents for FMCSA certification. Learn the requirements, costs, and benefits of choosing the right process agent for your business.
Standard deduction vs itemized deduction

Standard Deduction vs Itemized Deduction

Understand the key differences between standard and itemized deductions to effectively reduce your taxable income and potentially save on taxes. Choose wisely to maximize your tax benefits based on personal financial details.
How to calculate net income

How to calculate net income

Unveil the significance of calculating net income for business profitability, a key indicator for financial health and decision-making. Understand the formula and practical applications for determining net earnings.
Itemized deductions

Itemized Deductions: What they mean on a tax return

Optimize your tax return by understanding the differences between itemized and standard deductions, crucial for minimizing tax liability. Learn the benefits and challenges of itemizing to make informed financial decisions.
What are intangible assets

What Are Intangible Assets

Discover the value of intangible assets like patents and trademarks in your business, crucial for strategic and financial planning. Learn how to manage and amortize these non-physical yet essential resources.
What is accounting

What Is Accounting

Understand the importance of accounting in monitoring financial activities and making informed decisions for your business. Gain insight into accounting fundamentals and its role in legal and tax matters.
Dysfunctional family

Dysfunctional Family: Key traits and impacts

Explore the impact of growing up in a dysfunctional family, where constant conflict, neglect, and various addictions shape childhood experiences. Understand common traits, the consequences on children, and the cycle of unhealthy parenting behaviors.
When Was the Great Recession

When Was the Great Recession?

Delve into the Great Recession's timeline, an era of financial distress from December 2007 to June 2009. Understand the causes, including the 2007 housing bubble crash, and worldwide effects.
When Was the Last Recession in the US

When Was the Last Recession in the US?

Review discussions on America's most recent downturn, comparing the impacts and definitions of Covid-19 and the Great Recession. Analyze the significant effects of past economic crises on US policy and business approaches.
What to Invest in During a Recession- 4 Ideas

What to Invest in During a Recession: 4 Ideas

Uncover effective strategies for investing during a recession, assessing personal goals and current market situations. Examine four robust investment approaches to manage through economic declines effectively.
Will the US Get Hit with a Recession in 2024

Will the US Get Hit with a Recession in 2024?

Experts debate the likelihood of a 2024 US recession, analyzing factors like the yield curve and consumer confidence. Predictions vary, with a focus on interest rates and tech layoffs impacting the economy's future.
How Long Do Recessions Last

How Long Do Recessions Last?

Learn about typical US recession lengths and influencing factors, noting recent trends with shorter durations averaging 10 months. Investigate how external factors and government decisions affect recession timelines, comparing historical data.
When Will the Recession End

When Will the Recession End?

Economists predict a mild US recession with limited impact on employment and spending. The duration and impact of the recession depend on Federal Reserve policies and business cycle patterns.

See all blog: Business | Corporate | Employment

© Copyright | Nakase Law Firm (2019)