What Are Verbal Contracts?
When it comes to the law of contracts, a verbal agreement is enforceable if there is sufficient proof that the agreement exists, and if the agreement is not one that requires a written contract under contract law. The basic legal elements of a verbal agreement are: An offer made by the offeror to the offeree (the person receiving the offer); Acceptance of the offer by the offeree; Both parties having capacity to enter into a contract; Valid consideration for the contract; Mutuality of obligation; Legality of purpose; Proper Form: Certain contracts must be in writing under applicable contract law . Contracts that fall into this category may include: contracts regarding the sale of real property, contracts in consideration of marriage, contracts for sale of goods over a certain dollar amount, and contracts over one year. If an oral contract would necessarily fall into one of these categories, the oral contract will not be enforceable by a court.
The Legal Standing of Oral Agreements
The general rule of law in the context of verbal contracts is that a verbal contract will be legally enforceable only when it meets the following conditions:
- The parties to the verbal contract have a mutual agreement about the subject matter of the contract, or each party has performed an act of exchange. For example, one party may have provided a service for the other party, or the parties may have exchanged money.
- The contract covers a subject matter which is legal and/or not against public policy. In other words, two parties cannot enter into a verbal contract to be hit men, because making murder an enforceable contract would clearly be against public policy.
- Nothing in the law prevents the particular topic of the verbal contract from being legally enforceable. For instance, if a state has a statute requiring all contracts over a certain amount of money to be written and signed, then verbal contracts for such amounts are not legally enforceable.
- The parties demonstrate intention to execute their verbal contract. Courts will consider whether the "performance of the parties" – in execution of the contract – is clear and definitive. A written contract usually satisfies this requirement simply because the terms of the contract are clearly laid out in writing.
The exact details of the way that a written contract is interpreted for the purposes of the "performing the contract" requirement will be left for another article. For now, it is sufficient to say that the stronger the performance by the parties after the contract has been formed, the more likely that a court will find a verbal contract to be legally enforceable.
Examples of Verbal Contracts
There are many situations in daily life that entail verbal contracts. For example, you may call a restaurant to place a party order and the employee on the other end says "Okay, we can do that. Just be here at 5:00 and we’ll have it ready." At this moment, you have both expressly agreed to the contract terms: that you will arrive at the restaurant at 5:00 and they will have the food ready. Courthouses do not have difficulty enforcing this agreement, even if not one word of it is found in writing.
Sometimes, verbal contracts stem from more formal business arrangements. A homeowner may agree to hire a contractor. The agreement may contain specific information about what will be done, when it will be completed, and how much it will cost. An example of a less formal agreement that would still be enforceable is a painter painting a child’s bedroom. The painter is not a licensed company, the homeowner says "I’ll pay you $100 and some lunch food to paint it this week because you are my friend." Even if the contract is not written down, it exists. If the painter fails to return the room the way it was before, the child ends up with a blue bedroom instead of a pink one, the homeowner is still entitled to $100 for the paint and the painter must so compensate them from her own pocket. The same can be said of the painter’s end of this agreement; if the homeowner does not compensate them, the painter has a legal right to collect for what they have done.
Landlord-tenant interactions are also prime examples of oral contracts. You may tell your landlord that you will have August’s rent to them by August 15. It may also be the other way around. The landlord tells you that the rent is lowered by $200 if it arrives early. In these circumstances, the tenant and landlord have mutually agreed upon an agreement, as well as a compensation for doing what that agreement entails.
Difficulties with Demonstrating a Verbal Contract
Because oral contracts are based solely on the spoken word, they can be extremely difficult to prove in court. As with most breach of contract issues, the burden of proof is on the party that is claiming breach. In the case of verbal contracts, this often means that the relying party must establish that the other party in the contract indeed had intent to uphold obligations. The best way to do this is through witness testimony, or through an email or physical document that was sent after the oral agreement was made. These documents can be used to establish the intent of either party in regard to what was said in a verbal agreement that had not been reduced to writing. Without this type of evidence, proving a verbal contract can be nearly impossible, leaving many parties unable to seek damages for losses incurred as the result of a breach.
Exceptions to the Statute of Frauds
Although oral contracts are generally valid in Texas and enforceable, there are some exceptions. Texas enacted the Statute of Frauds, originally designed as medieval English legislation requiring certain transactions to be in writing to be enforceable. The Statute of Frauds requires that certain contracts must be in writing, and provide other protections for a party against a fraudulent claim:
• Any agreement which is not capable of being performed within one year from the date it is made;
• A promise to pay the debt or an estate of another, or a promise to answer for a debt or default of another;
• A promise made upon consideration of marriage;
• A promise by an executor or administrator to answer any damages out of his own estate;
• A sale of goods , for the price of $500 or more;
• A lease of real property for a period longer than one year;
• A promise to perform work and services for which the required consideration is $50 or more in value;
• An assignment of rights or claims against an indivisible estate, in which the consideration agreed upon is more than $50; and
• A contract for a loan, or advance, of money or valuable goods, wares or merchandise, in which the consideration agreed upon is $50 or more. Texas has also enacted the Uniform Commercial Code, which mandates a few additional required written agreements.
Safeguarding Your Interests with a Verbal Contract
If most verbal contracts aren’t enforceable, and in so many ways they aren’t, the question becomes how to protect yourself if you enter into one. There are several steps you can and should take to protect yourself.
Communicate in Writing
Keep records of all of your communications with the other side. If you have emails, texts, phone records or other written communication, it will help you prove the nature of the agreement and the expectations of both sides. If you don’t have anything in writing at all, do your best to confirm the information with a follow-up email or text, and keep a record of that. You may want to summarize what you understand the terms of the contract to be, and even ask the other side if you have it right. Again, this creates a record of the agreement that may be helpful later.
Follow the Terms
While you may be able to enforce an implied contract, proving how it works will always be easier if you follow the terms as you understand them. It’s always better to live up to your end of an agreement to the best of your abilities. For example, if you agree to make a payment by a certain date, do so, regardless of whether the agreement is legally enforceable.
Communicate When Issues Arise
If, for some reason, you can’t comply with the terms of the agreement, contact the other party right away. Tell them what the issue is and why you can’t carry out your end, and try to look for a resolution. You can’t expect the other side to forgive the agreement outright, but by being timely and prudent in your communications with them, you can give them the opportunity to find a mutually agreeable solution, such as an extension of time or some other sort of concession.
Getting Legal Assistance for a Verbal Contract
While it is possible to enforce an oral agreement given the right circumstances, not every oral agreement meets these conditions. Consulting an attorney before taking action based on a verbal agreement is recommended, since a lawyer can give legal advice as to whether certain elements of an oral contract can be proved. If a court case does result from the situation , having an attorney on your team can make a huge difference. Seek the advice of a qualified attorney when: An experienced lawyer can preserve the evidence needed to prove an oral contract, or to defend against the perceived existence of a contract. Depending on the situation, your attorney can begin their work by issuing discovery demands, taking depositions, or gathering relevant documents such as emails and audio recordings. This evidence can then be used to establish or disprove whether a verbal contract was made.