A valid verbal contract requires an offer, acceptance, and consideration, subject to California contract law and the Statute of Frauds. Evidence, witness testimony, conduct, and written communications may help establish whether a verbal agreement is legally enforceable.
By Brad Nakase, Attorney
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An unwritten but legitimately binding contract between parties that complies with the Statute of Frauds and has all the standard components of a contract is known as a verbal contract. Because oral contracts are not documented in writing, they might be complex. There’s no written documentation to review to resolve a dispute over the conditions of the agreement or its existence.
Instead, the parties’ testimony is usually required to determine the parameters of the agreement. Witnesses may also assist in reconstructing the parameters of the agreement and the parties’ post-agreement behavior.
Unfortunately, since most verbal contracts are made by people who trust each other, disputes arising from broken verbal agreements are typically emotional in nature.
In California, verbal agreements are still in use despite their shortcomings. This can occasionally be the result of commercial necessity, such as when an arrangement is made without a pen or paper. An agreement may be reached and sealed with an informal “handshake” in some situations. Both scenarios depend on the parties’ mutual trust.
Oral and verbal agreements are enforceable in the state of California, even though it is better to have a written contract. The following three components of a legally binding contract must be included in a verbal contract for it to be deemed legal and legitimate:
An oral agreement is not enforceable if any of the aforementioned components are absent.
Verbal agreements must also abide by the California Statute of Frauds. According to this law, verbal contracts are prohibited under specific circumstances.
1. The Offer
The offer is the initial component of a verbal contract. When one side suggests terms that are sufficiently clear for someone with common sense to comprehend and adhere to, an offer is made. For a contract to be legally enforceable, not every clause needs to be included. Only those provisions that are substantial, or significant, for the specific contract are required to be included. The following are examples of such terms:
Occasionally, the recipient of the offer will respond with a proposal of their own. In other words, they may prepare a counteroffer and reject the conditions of the initial offer. In verbal negotiations, counteroffers and offers can occur rapidly—sometimes in a matter of seconds. Both the words themselves and the environment in which they are spoken can have an impact. This contributes to the difficulty of enforcing verbal agreements. When parties disagree over a verbal agreement, they frequently argue about the exact terms of the proposal, with one side arguing that there was never a contract.
2. Acceptance
A legally enforceable agreement requires acceptance of both the offer and any counteroffer. When a party accepts the conditions of the offer, it is considered accepted. Acceptance of a verbal contract might be quite easy. Actually, it could be as easy as uttering these words:
The exact wording of an acceptance might be important. It is just like with an offer. Each person will give their own account of what transpired if there is a disagreement. It is quite hard to prove what really happened.
A handshake is usually used to seal verbal agreements and signify that an agreement has been achieved. The parties’ desire to be obligated by the terms of the agreement is strongly indicated by the handshake. However, even a handshake may be contested in court by a party attempting to demonstrate that no agreement was made. Having a witness to the incident is helpful in proving that a handshake took place.
3. Consideration
The concept that both parties to a transaction are giving up a thing of value in exchange for the agreement is known as consideration in legal terminology. The transferring of money for products or services is the consideration in the majority of verbal contracts. The outcome of a dispute may hinge on whether the verbal contract requirements were satisfied.
The agreement is probably a gift rather than a contract if just one party is making an offer. There is no legitimate contract that grants each party rights & obligations if the arrangement is a gift.
Verbal agreements between parties are just as legally binding as written ones as long as they don’t break the Statute of Frauds. Oral agreements must just fulfill the conditions of a valid contract to be upheld by a court, just like written contracts. Both written and verbal agreements are enforceable if they satisfy the aforementioned conditions.
Nevertheless, verbal agreements are much more difficult to verify than written ones. The conditions of the contract may be contained in physical form for reference when parties are disputing a written document. However, it is more difficult to ascertain each party’s rights and responsibilities when there is no agreement to refer to.
It is necessary to first settle the parameters of the agreement, as well as whether an agreement was made at all. A “she said, he said” dispute usually comes from this circumstance. In an attempt to establish their credibility, each side will provide their account of what happened. Courts evaluate several verbal contract requirements before enforcing an agreement.
The specifics of each case will determine whether or not a verbal contract can be enforced. Nevertheless, the following components are present in many cases:
A court will be able to ascertain the fundamental terms of the agreement and if it was broken with the aid of evidence like that mentioned above.
Testimony from both sides and information about their behavior prior to and following the time the agreement was signed is usually required to show the conditions of a verbal contract.
While it is correct that the testimony usually becomes a “she said, he said” scenario, any contradictions in a witness’s account may indicate that they lack credibility or dependability. This would demonstrate that a contract was not formed as they claimed.
Generally speaking, the most telling and trustworthy evidence is the parties’ actions both before & after the purported contract. For example, it serves as proof that there was some sort of agreement if one side paid the other. The parameters of the verbal agreement become somewhat evident if a service or good was rendered at some point during this payment.
Even if it isn’t a contract, other written documents might be helpful. Invoices, letters, emails, and texts, for instance, can provide indirect proof of a verbal agreement. Maybe someone texted me to ask, “When will the thing be delivered?” This type of communication would indicate that one party thought there was a deal.
A witness may occasionally be asked to provide firsthand testimony. Third persons who were present when a contract was made may be considered witnesses. Workers of one of the participants or other people who were unintentionally involved in the arrangement may also provide evidence. Based on the manner in which their job responsibilities changed prior to, during, and following the verbal contract, these people can testify about what they thought the agreement was, if it was present.
It is clear that figuring out the essence of an oral contract can be very difficult. Numerous indirect and circumstantial pieces of evidence from various sources were used to determine the specifics of the contract.
The Statute of Frauds is one topic that may come up in a verbal contract dispute. A statute known as the Statute of Frauds stipulates that some transactions must be in writing. The following kinds of agreements must be in writing to be enforceable (California Statute of Frauds):
Any of the aforementioned agreements that are not in writing are not legally enforceable. Under the UCC (Uniform Commercial Code), which addresses sales of products valued at more than $500, the same regulation is applicable. The verbal contract requirements may vary depending on the nature of the agreement.
The Statute of Frauds is intended to stop people from making up oral contracts on significant kinds of transactions. To safeguard their possessions, this keeps innocent persons out of contentious situations.
A written contract may occasionally be agreed upon by parties, who subsequently choose to change it verbally. In this case, a verbal contract change is handled just like any other spoken contract. It has the same limitations and enforcement issues as standard verbal contracts in this regard.
Even the requirement that any changes be made in writing is seen in many written contracts. People should be cognizant of this possible clause since it could render verbal changes unenforceable. The original contract’s rights and responsibilities would be safeguarded by such a clause.
A written contract may occasionally be changed verbally, but the original agreement is still subject to the Statute of Frauds. Oral changes to the original agreement may be enforced in this uncommon situation, but only if they relate to the execution of the contract instead of a substantial term. The verbal modification will not be admissible in court if it modifies a significant clause in the written contract.
It’s not always the end of the story if a verbal agreement is found to be unenforceable or to breach the Statute of Frauds. A person may be able to seek an “equitable” resolution in court even though they may not be allowed to enforce the original contract’s provisions.
Promissory estoppel and unjust enrichment are comparable to equitable remedies. The argument is that since the other party received value, it is unjust for them to benefit from it without having to pay for it. An individual may request monetary damages as a form of compensation, and an attorney may present evidence of the value provided to the opposing party. Legal professionals examine the verbal contract requirements when assessing oral agreements.
The numerous laws and legislation relevant to the validity of verbal agreements in California are far more extensive than the aforementioned citations. It is sufficient to say that anyone who believes there may be a legally binding verbal agreement should consult with knowledgeable legal counsel to find out if that is the case and refrain from presuming that only a written agreement can bind the parties, particularly in situations where written agreements are typically necessary.
If a court believes that one party “fooled” the other into depending on a promise, they are likely to uphold the contract since they detest fraud. Even if the necessary steps are not followed, principles like waiver & promissory estoppel can be used to construct a legally binding agreement.
This does not imply that oral contracts are the best option. The expense and chaos of trying to uphold a verbal commitment are immediately apparent, and written agreements are always preferable. A written contract can contain helpful elements that are not enforceable in an oral agreement, such as provisions for mediation and arbitration or attorney fees to the winning side.
Even with all of the aforementioned exceptions, some real estate or guarantee transactions are very hard, if not impossible, to execute without a written agreement. If you can, put it in writing.
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