Most people do not know that verbal agreements are actually contracts themselves. We actually are making day-to-day decisions, and they include, sometimes unknowingly, verbal agreements as we go on and enjoy the rest of our day. Ordering food such as at a restaurant or cafe is in itself a contract. Other examples are buying coffee and groceries and taking a haircut.
You may realize it by now, but most of our days are legal in nature if you think about it. Which is why most people question, "Can a verbal agreement be legally binding?”
What Is a Verbal Agreement?
A verbal agreement, also known as an oral agreement, is a contract formed through spoken communication rather than in writing. They happen when two people or more discuss and agree on terms during a conversation. As simple as a neighbor asking another neighbor to mow their lawn in exchange for money, that in itself is already a contract even though it was done verbally.
It does not matter if they are not written; a verbal agreement functions like a normal contract because parties involved make promises or commitments to each other and fulfill them. However, what happens if one party does not fulfill what they had promised since they work like regular contracts?
Are Verbal Agreements Legally Binding?
Yes, verbal agreements or oral contracts are legally binding just like any other forms of contracts; they are enforceable in most courts. If one party does not fulfill what they had promised, then you can ask the courts for remedies as long as the key elements are present. Courts, when resolving cases where they involve verbal agreements, would usually look for the elements to determine whether they were valid in the first place.
Key Elements of a Valid Contract
-
Offer – One party clearly proposes specific terms or conditions.
-
Acceptance – The other party agrees to those terms without significant changes.
-
Consideration – Both parties exchange something of value, such as money, goods, or services.
-
Mutual Intent – Both parties intend to enter into a binding agreement and understand their responsibilities.
-
Capacity - The parties involved must be at the right age and of good sound mind at the time the agreement was conceived.
If just one of these elements is missing, the courts will deem the agreement as not binding and invalid in the first place. Meaning, the contract never reached finality thus unenforceable.
The Biggest Challenge With Verbal Agreements: Proving the Agreement
Verbal agreements or oral contracts are notoriously known to be very hard to prove, especially when their nature suggests they are so informal that they don’t actually need to be documented. The lack of documentation is not needed since verbal agreements stem from day-to-day personal transactions. It would be too inefficient and inconvenient if every time you faced an agreement, you had to produce a document to acknowledge the existence of such and make it binding.
There are, however, instances, and they are common in the lower courts, where disputes come from normal personal transactions. Let us go back to the lawn example.
Say two neighbors, Jake and Mark, agreed to have Mark's lawn mowed every week in exchange for an amount of $300. Jake mowed Mark’s lawn for a month, and now when it is time to pay, Mark argues that the original amount agreed upon was just $200. Jake then decided to take the case to court.
In court, the judge only had to rely on very limited evidence to show that there was an agreement. However, upon inspection, jake showed the text message where it said “sounds good” but there was no mention of the price or time period because some of the agreement was done verbally. Since the issue here is the amount and not that there was actually work done (because both have established that there was indeed work rendered), the judge ruled in favor of Jake; even if there is no valid agreement as compensation for his efforts, although not the amount he expected but the amount reasonable for the work done.
Evidence That May Support a Verbal Agreement
Even when the nature of verbal agreements are hard to prove in court, there are actually some things both parties can do if they still prefer it not to have it in writing. Because it takes longer and people would still have to produce a well-written document just for something short and personal, people tend to avoid doing so.
To support any claim, these are some steps people may include:
-
They may ask a person or some people to be witnesses of said transaction.
-
Documentation of any form, whether taking a picture or recording a voice clip or video, or an acknowledgement paper that there was indeed a verbal agreement between the two.
-
Actions that are consistent with the claims.
Can You Back Out of a Verbal Agreement?
Yes, since verbal agreement does not involve much stricter conditions to be valid, you can choose to back out of it, but not every form of verbal agreement is easy to back out of.
The most common type of rescission would be to notify and communicate with the other party of your cancellation or withdrawal. Clear communication will avoid future disputes, most especially if there still aren’t any actions taken yet to fulfill the agreement.
However, based on timing, there could also be issues, especially when, at the moment you decide to withdraw, there is already work and effort done in fulfillment. The other party can resort to legal action against you for damages. For example, the other party has relied on the agreement, like purchasing supplies, setting a work schedule, and even hiring extra help to complete a task.
Because there was reliance already in the phase of the agreement that is in, the courts would find it unfair to simply walk away from the agreement even though it was only done verbally. The other party is entitled to compensation for the money they spent, opportunities, and time lost. Because no one should suffer losses after reasonably trusting other people’s promises.
Situations Where Agreements Should Be in Writing
There are limitations when it comes to agreements. Not all agreements can be done verbally, and don't expect others to follow or memorize every crucial detail involved in a transaction. Which is why written contracts exist whether handwritten or digital.
Some agreements legally require written contracts to be enforceable. Common examples include:
-
Real estate transactions – Buying, selling, or leasing properties involve large amounts of financial commitment and high-risk or high-value subjects that should protect all parties involved.
-
Contracts that last longer than one year – Agreements that should last more than one year to be legally enforceable according to the Statute of Frauds.
-
Large financial agreements – High-value loans, investments, or other financial commitments should be written to ensure clarity and enforceability.
-
Business or partnership arrangements – Contracts involving responsibilities, liabilities, or profit-sharing between businesses or partners require written documentation to prevent disputes.
These types of transactions involve a significant financial transaction, so having it in writing is a must to prevent all parties from problems. Having it written serves as documentation that it is indeed agreed upon and signed upon. A person involved in the transaction will be given a copy, and when he has doubts in the future, the terms and conditions remain clear. Should there be changes that all parties agree on, they can also do so using amendments.
Why Written Agreements Are Usually Safer
Unlike verbal agreements, which most likely are unsupported by evidence. Written ones are actually undeniable, as it serves as proof itself that indeed there was a “meeting of the minds” in the first place.
It would also be easier for courts to determine the roles and responsibilities of all parties involved should one be insolvent or refuse to fulfill their duties. Notarized or not, a written document is still valid. It would also become a stronger legal when it would be notarized since notarization is an affirmation in the presence of a third-party who is legally in capacity to authorize its legal existence.
