What Are Verbal Agreements?
In very oversimplified terms, a verbal agreement is a spoken agreement between two or more parties that is not documented. Often, a verbal agreement is erroneously equated with a contract. However, the word "contract" has a specific legal definition. A contract is a legally enforceable agreement between two or more parties that sets forth the specific terms of their relationship as it relates to a particular subject matter-whatever that subject matter may be . A verbal agreement is not a contract because it is not in writing and/or not signed. Conversely, a verbal agreement is a spoken agreement and/or negotiation between two or more parties that does not meet the elements of a contract. However, verbal agreements are legally enforceable in many situations. Verbal agreements are also known as oral contracts or unwritten contracts.
Common scenarios where verbal agreements are relied on include:
Legality of Oral Contracts
A verbal contract can be held up in court as long as the terms and conditions are clear and work that can be done has started. Any terms or details that are not clear may not hold up in court. Depending on a number of factors, verbal contracts may be legally binding upon the law. The issue is typically whether or not a verbal contract was created. To determine this, the court will look at the intentions of the parties that entered into the agreement and whether the elements of a verbal contract existed. Courts have their own rules for reviewing the validity of a verbal contract. Each case is slightly different and may turn in favor of the party who believes that the contract exists and was breached even if its details are not in writing and a party started performing on this contract anyway, relied on it, and was damaged by its failure or breach. There are particular circumstances when a court may support a verbal contract. In some cases when an agreement is created through electronic means, such as email for example, and where no written contract implies an agreement, the court may find the agreement stands in court as a valid verbal contract.
Requirements to Make Oral Contracts Enforceable
For your verbal agreement to be legally binding, four essential elements must be present:
1. Offer
A clear proposal must be made by one party to another (i.e., an offer to provide a service or perform such-and-such task). An offer is not simply an inquiry into whether the other party is interested in a type of work or service. For example, an inquiry that states "would you like new vinyl siding for your home?" usually does not count as a legal offer to put new siding on the person’s home.
2. Acceptance
The second party must accept the offer. A signed contract does not need to exist for this to happen. Creating a contract does not require any particular language or words to be said—the party simply must act in a way that demonstrates that he or she has agreed to the terms of the offer (i.e., allowing the work to be completed).
3. Consideration
This is a legal term that simply means something of value is being exchanged in the agreement. There are many different things that can be considered valuable for the purposes of contracts, including services, money or property. For a contract to be legally binding, something must be received from one party in exchange for what the other party offers.
4. Mutual consent or meeting of the minds
The two parties must agree to the same terms with respect to the subject matter at hand. If any material detail is in dispute, the parties may not have agreed to the same terms. In some cases, you may find that a court finds the parties had a mutual understanding when the dispute relates to a minor detail or if it is viewed as an unintentional error.
Problems With Oral Contracts in Court
Despite the potential for common challenges to verbal agreements, they are still frequently entered into. This may leave the parties involved in these agreements to wonder what happens when a verbal agreement is broken and what type of evidence is required to support their case in court. Any verbal agreement may prove particularly challenging to both prove and enforce in court. This is largely because of the lack of evidence that most verbal agreements exist. Often, there are no tangible or written records of the agreement , making it difficult to determine its terms and meta details. Even if it is possible to prove that a verbal agreement exists, there are few physical or documented methods to prove that the terms outlined in the agreement were upheld by either party. In this regard, the court must inevitably rely on the testimony of the parties involved in the agreement as well as any witnesses who may have been present. This will likely involve "he said, she said" allegations, which may be difficult to prove in some cases—especially if the parties were alone when discussion the agreement.
Exceptions and The Statute of Frauds
The Statute of Frauds sets out a number of types of agreements that must be in writing to be enforceable. Those include:
• Agreements for the sale of Land
• Agreements that are not likely to be performed within 1 year of the making of the agreement – which is essentially an agreement that cannot be performed within 1 year from the date of the agreement
• Agreements to answer for the debt or default of another person
• Agreements relating to wills
• Agreements involving interests in land going beyond one year
• Agreements made in consideration of marriage
• Contracts for the sale of goods of the value of $5,000 or more, where goods are not to be provided within one year of making the agreement.
The Statute of Frauds requires that such agreements be in writing and signed by the party to be charged before any court can enforce them. In some circumstances, oral agreements will be enforceable despite the Statute of Frauds. For example, where there has been part performance of the contract (meaning, both parties have partially performed their obligations under the contract), a court may find that the agreement requires enforcement despite the Statute of Frauds. In some cases, this part performance is evidenced in writing. Otherwise, courts may find part performance where it would be unjust if the parties were not held to the contract. Other exceptions apply, and may allow the court to order specific performance of agreements not covered by the Statute of Frauds. The agreement that you are relying on may fall under one of these exceptions. If in doubt, speak to a construction lawyer.
How to Safeguard Your Oral Agreements
After the two parties have verbalized their contract as we discussed, one thing both need to do to protect themselves is keep good records of the contract. File records of the contract for the business. Make a note in the books that a specific deal has been made with a customer.
Another thing that both parties can do is have witnesses of the verbal contract. Witnesses would be someone who is present during the conversation and then would make a written statement afterwards stating that they heard the agreement being made. The other thing that would be a good idea is to send a letter or email after the agreement is made to confirm the details and see if they have any leverage that they would like to put on the deal. Inform them in the letter that you are confirming the agreement that was just made over the phone. This protects you because if it ends up in the court , you have proof and can easily prove that an oral contract was made because you have sent written confirmation that the deal was made.
It is very important that you remember that without a written contract, you have less chance of holding your end of the deal. It’s always best to have a lawyer write an official contract, but sometimes things happen seemingly out of the blue and a contract is not able to be run before the agreement is made.