How Do You Make a Verbal Agreement Legally Binding?

Some verbal contracts are legal, while others do not qualify as valid contracts. However, in the majority of situations, a written contract is preferred. In this article, we will go over how to make sure an oral contract is legally binding.

Do Verbal Contracts Hold Up in Court?

Oral contracts occur when two parties create a contract without writing anything down. These contracts often hold up in court and are legal agreements. Although oral contracts are often honored in the same manner as written contracts, they can be difficult to regulate, enforce, and prove. Many factors impact the validity of oral contacts, from federal laws to state statutes.

Although verbal contracts are legal, it is preferable to place all contracts in writing. When the involved parties document their dealings, proof of the contract exists. In addition, writing down the terms of a contract avoids future debate and uncertainty and is the best way to complete an agreement.

Verbal Contracts: An Example

Jeff and Tim live in Mammoth Lakes, California, and often go snowmobiling together. Tim is saving money for an engagement ring for his fiancé Tammy, and he decides to sell his three snowmobiles. When Tim mentions this to Jeff on a snowmobile ride, Jeff is instantly interested in the sale. Tim tells Jeff he isn’t sure what the vehicles are worth, but he will let him know.

That night, Jeff calls Tim and, after some small talk, offers Tim $12,000 cash for the three snowmobiles. Tim wavers: he tells Jeff he wants to do some research on the price of the snowmobiles, and he also wants to draw up a bill of sale. However, Jeff presses him and says it is “now or never.”

Tim knows he needs at least $10,000 for the ring Tammy wants, so he agrees to the terms of the deal and accepts Jeff’s offer. Jeff will wire Tim $12,000 the next day, and when he receives the money, Tim will drive his truck over to Jeff’s house and drop off the snowmobiles.

Tim wakes up to a message from his mother: she wants to give him her engagement ring to propose to Tammy. The ring is worth $30,000, and Tim knows Tammy will love it.

Now, Tim wants to renege on the deal, but can he? Is the verbal contract he and Jeff agreed on valid; will it hold up in a court of law?

When Are Verbal Agreements Invalid?

Some parties are unable to put their contracts in writing. When this occurs, there are specific steps people can take to ensure that their verbal agreements are deemed legal by the parties involved and the court.

A verbal contract is valid if it contains these components:

Offer and Acceptance
Fair Consideration
Mutual Assent
Clear terms
Valid Circumstances

When oral contracts do not include these parameters, they usually cannot be proven valid and, therefore, will not hold up in a court of law.

Offer and Acceptance:

One party must also propose an agreement, and the other must accept the deal’s terms. But, first, one party must make the offer. In our example, Jeff calls Tim and offers him $12,000 for the snowmobiles.

Both offer and acceptance must have occurred between the parties for the deal to be viable. Though Tim ultimately regrets it, Tim accepts Jeff’s offer verbally on the phone. Sometimes, this acceptance later needs to be proven, depending on evidence or witness testimony. For example, since Jeff wired Tim money, there is evidence to prove that the agreement existed.

The parties must fulfill both offer and acceptance for the deal to be legally binding.

Fair Consideration:

Additionally, for a verbal agreement to work, both parties must exchange something of value.

Consideration implies that individuals or businesses “give up something” in exchange for the contract terms. Usually, consideration represents the exchange of money for services or goods. In our example, the $12,000 sum is the consideration for Jeff. Tim’s consideration is the snowmobile that Tim agrees to give up and sell to Jeff.

If Tim were to simply give Jeff the snowmobiles, this would be considered a gift and not a valid contract because Jeff did not sacrifice anything. Contracts normally give both parties rights and then ask both sides to meet obligations.

Mutual Assent

This step in the verbal contract process is often known as a “meeting of the minds” because both parties must agree and accept the terms. Jeff makes the offer, and Tim accepts and agrees to bring the snowmobiles to Jeff’s house the next day. Therefore, mutual assent has taken place.

Use Clear Terms:

The involved parties should phrase the terms simply. For example, the court does not want to deal with a “he said, she said” situation, and using straightforward phrasing can avoid this. Also, each party should ensure that everyone understands the language.

Valid Circumstances

If one party involved in the verbal contract is a minor, illegally or wrongfully coerced, or is mentally impaired, the court will not consider the contract valid. Additionally, the court may deem the contract unenforceable if the contract resulted from fraud or duress.

Although Tim regrets the sale of his snowmobiles, he was of sound mind when he agreed to sell them to Jeff.

When verbal contracts lack one or more elements, they are considered invalid. However, two additional elements can help prove a verbal agreement under California breach of contract law, especially if a dispute occurs.

Locate Evidence of the Agreement

Oral contracts rely on evidence. This documented proof can be present in:

- Emails
- Letters
- Texts
- Bank Statements
- Letters
- Receipts

Tim and Jeff spoke on the phone, so that phone call could prove important if Jeff recorded it. However, just because Tim wants to opt out of the deal does not mean that the verbal contract is invalid.

Witnesses

Witnesses are helpful when the court attempts to determine the validity of an oral contract. Unfortunately, while witness testimony can be a valuable tool, there were no witnesses to the deal between Jeff and Tim.

Sometimes, witnesses are unaware of the agreement, but if they can provide an unbiased, accurate testimony can quickly change the case’s outcome.

Write the Terms Down

Whenever it is possible; individuals should supplement verbal contracts with written documents. This act makes upholding the contract much easier in court. However, if this is impossible, parties should maintain records of all written documents between individuals or businesses.

What is the Burden of Proof, and Why Is It Important?

Verbal contracts may be fairly common, but they are difficult to prove. If one party disputes a contract, that party can take the other to court and sue them. However, for a lawsuit to occur, the contract must be evidenced by proof.

If Tim decides that he wants to renege on the deal with Jeff and Tim refuses to sell the snowmobiles, he must give back the $12,000. However, Jeff can still attempt to preserve the terms of the deal. If the case goes to court, Jeff can provide evidence that he sent Tim $12,000, but that is the only element of certain evidence he has.

Without witnesses or formal, signed documents, verbal agreements such as Jeff and Tim’s are easy to contest and debate, and often these types of disagreements come down to a “he said, she said” situation.

“He said, she said,” situations pit the words and memories of one person against another, making them difficult to get to the bottom of. When the legitimacy of an agreement comes down to one person’s word against another’s, proving that the agreement is binding becomes difficult. For example, if Tim says he does not remember accepting Jeff’s offer, the issue is reduced to Jeff’s memory versus Tim’s recollections.

In this case, the judge will examine both parties’ rendition of what occurred and try to find errors or inconsistencies. When this occurs, the contradictions in one or both parties’ telling of the events become essential and can determine the direction of the case.

How Do You Prove an Oral Contract?

How can individuals or businesses prove that the contract existed? In addition to the evidence of a “paper trail” or witness testimony, the parties’ actions can tell us the truth. For example, when money, goods, or services are delivered, it usually becomes clear that an agreement is in place.

Returning to Jeff and Tim, Jeff wired Tim the expected amount of money: $12,000. This action may be enough to legitimize the two men’s oral agreement to sell the snowmobiles. If Tim had delivered the snowmobiles, there would be no doubt that Jeff and Tim had created a verbal contract.

Here are a few tips to help individuals and businesses create legally binding oral contracts. First, we recommend that you write every contract down, whether it is a bill of sale or a general contract for services, goods, or products. Using signed documents helps the involved parties avoid disputes and legal battles that can be time-consuming and expensive.

Gather relevant documents: emails, text messages, and any other forms of documents can help strengthen the case even if you don’t have the contract’s terms in writing.
Write up the terms of the agreement and send them to the other party. Ideally, have both parties sign and date the agreement.
Ensure there is a witness to the contract.

Ultimately, Tim accepted the terms of the sale and brought Jeff the snowmobiles. Tim decided to accept the engagement ring from his mother but also sell the snowmobiles. He plans to surprise his wife with not only the ring but a honeymoon paid for by the sale of the snowmobiles. Besides, Tammy wants him to spend less time snowmobiling anyway. Tim and Jeff remained friends, and Jeff told Tim he could come over for a ride anytime.

Oral contracts are legal but are only legally binding if they are supported by proof. Therefore, when entrepreneurs and businesses cannot put their contracts into writing, they should make sure that they collect enough evidence to prove the agreement is valid.

Contact the Business Lawyers & Corporate Attorneys at Nakase Wade

Identifying the proof of a verbal contract can be difficult, and analyzing the details can be difficult and time-consuming. If one or both parties choose to dispute an oral contract, it is always an intelligent choice to contact an experienced attorney for help with the matter. A skilled attorney can help both parties identify and organize the key elements of the case and bring about a welcome settlement.

Jeff and Tim settled their dispute successfully, but not all disputes end up that way.

For assistance with oral agreements in California, contact Nakase Wade. While it can be difficult to prove that a verbal agreement is legally binding, we are confident we have the experience and knowledge to earn you the settlement you deserve.

Our experienced attorneys will help to get to the bottom of the dispute and fight for the correct resolution to your situation. We look forward to hearing from you.

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