Are Verbal Contracts Legal?
Our modern technological world runs on emails and texts instead of lengthy signed documents. For example, making a formal business agreement or entering a new contract can occur in various ways, including phone calls, emails, and even social media.
Many wonders if oral contracts are legally binding in this age of fast-paced communication. However, whether spoken, oral or verbal, these agreements are legal.
While written contracts are typically the better choice for binding legal agreements, the law allows people to create verbal contracts. For example, business partners finalize an agreement with a conversation or a handshake daily. However, will these oral contracts hold up in a court of law?
Are Verbal Contracts Enforceable in Court?
Legally, verbal contracts are just as binding as written contracts. But to successfully prove a verbal contract, proof is needed. Unfortunately, in some cases, the proof is difficult to obtain.
Many business owners and entrepreneurs are constantly busy, and sometimes writing things down appears to take too long. Moreover, modern entrepreneurs sometimes think a quick oral agreement is enough to seal a deal. Still, the issue with enforcing verbal contracts is that they often depend on people’s recollections without proof.
There exist six elements that make a contract legally enforceable. When these elements are in place, the contract is usually considered binding.
Components of a Binding Contract
To have the ability to begin the contract, all parties must be:
-Lawfully recognized as adults
-Of sound and rational mind
For example, Jewel puts an ad in the paper, hoping to sell her old car. Jewel meets up with Roy, and he agrees to buy the car. However, Roy tells Jewel he will withdraw the money tomorrow and bring it to her.
Roy’s nephew arrives at Jewel’s house the next day and explains that his uncle has Alzheimer’s disease. Roy has no recollection of offering to buy the car, and his nephew says his uncle cannot drive a car anymore.
In this case, the contract is unenforceable because Roy is not of legal capacity to enter into a contract. In addition, Roy is not of sound mind.
No individual can force another party into an agreement. Therefore, coercion cannot be a part of the oral agreement.
Instead, parties of sound mind must freely agree to the terms of the deal. Neither party should deal with emotional damage, unjustified influence by other parties, or factual misrepresentation.
For example, Bill sells his motorcycle online but uses fake pictures. When Jack arrives at Billy’s house to buy the bike, Jack realizes that Billy’s motorcycle is on its last legs and that the picture is a complete misrepresentation of the actual motorcycle.
When Jack tries to explain this and leave, Billy threatens the smaller, younger man with violence. Scared, Jack promises Billy he will buy the bike the next day.
Jack agrees to buy an item he does not want because of unjust pressure, and this verbal contract and resulting sale would be illegal.
Parties’ Offer and Acceptance
A valid contract is based on a simple action: one party makes an offer, and the other party accepts the offer.
Sometimes referred to as the “meeting of the minds,” this encounter consists of two individuals:
- Meeting up in some capacity
- Both agreeing to the specific terms of the deal
For example, Jade loses her job and needs money for rent. Her friend Pablo offers to give her the $900 Jade needs to pay the rent if Jade can pay it back in under one month.
Grateful, Jade accepts Pablo’s offer and promises she will pay back the entire $900 as soon as possible. However, Pablo reminds Jade that he will also need to pay his rent soon, and Jade understands. Nevertheless, in two weeks, Jade has worked enough extra shifts at her new job to pay back her friend Pablo and save money for her upcoming rent payment.
A viable contract also must be created for a legal purpose. Often, the parties share a common purpose, but sometimes the purpose originates from one person.
For example, Henry forgets his wallet at home but needs to get on the bus for work immediately. However, Henry cannot be late because he has to give an important presentation. While waiting for the bus, a desperate Henry asks his friend Maggie if she will pay for his bus fare. Maggie agrees on the condition that Henry pays her bus fare the next day and buys her lunch for her trouble.
Henry’s urgent desire to get to work is a logical reason to borrow money from Maggie. In this case, a ” basis ” refers to a contract with a clear, legitimate purpose. Henry’s basis for borrowing the money is clear.
If Henry borrowed money from Maggie to fund an illegal gambling ring that meets at the back of the bus, the purpose of Henry’s act would be illegal. The verbal contract Henry and Linda established would then be voided.
Consideration is one of the most integral aspects of an oral contract. Consideration means the two parties must exchange an item of value, paper money, or something else due to the oral agreement.
The item or cash is called consideration, and it must be legal.
For example, Jeff’s pencil breaks in the middle of a math exam. So he borrows a pencil from Luke and promises to pay him a dollar the next day for the pen. The consideration, in this case, is the pen that Luke loaned to Jeff.
If Jeff had asked Luke for illegal drugs and promised to pay him the next day, the exchange would not be legal and voided.
All spoken contracts must be completed according to the parties’ terms. Additionally, the parties must agree on the other issues vital to the oral contract, including:
- The content of the contract; what terms the contract contains
- The price of the item or thing of value
- The important parties who create and abide by the contract
- The obligations of each party
For example, Leroy asks his neighbor Ted to loan him $400 for rent. Leroy promises Ted that when he gets paid next week, he will pay the money back, plus an extra $50 interest. The two friends and neighbors shake hands but do not write anything down. Therefore, Leroy and Ted have entered into a verbal contract.
The terms of the contract between Ted and Leroy are clear, and it is also clear what the parties must complete for the oral agreement to be fulfilled:
- Ted must loan Leroy $200 for his rent payment
- Leroy must pay Ted $250 when he receives his paycheck
All verbal agreements cannot be viable without the completion of the terms.
When Are Verbal Contracts Considered Not Binding?
In California, the Statute of Frauds includes the agreements that must be written down to be legally enforced. These include:
- The sale of personal property over $5,000
- A service that cannot be performed during the life of the person who promises to perform it
- A sale of goods over $500
- A contract that cannot be finished in a year
- A real estate lease or sale lasting longer than a year involving a third party
- Individual’s defaults and debts
- Real estate sales and mortgages
- Lending or crediting over $100,000 but without use for household, family, or individual expenses
Additional contracts may prove enforceable even if the parties only recorded them orally. However, it can be challenging to prove an oral contract without documentation.
It is important to note that these terms differ from state to state. If you have any doubts, contact our breach of contract lawyer at California Business Lawyer and Corporate Lawyer, Inc. before pursuing an oral or written agreement.
How Do Verbal and Written Contracts Differ?
Many people favor written contracts. Why? Because verbal contracts are more tenuous. Oral contracts may be quick and easy to create, but there is always the chance that one party will not agree to or fulfill the contract.
For example, Ronald’s car dies before an important work week. Ronald is in dire straits since he does not live near a bus route and is already on thin ice at the office. He fears his boss will fire him if he is late to work this week.
Ronald’s friend, Gertrude, offers to lend her car to Ronald for the week. However, at the end of the week, he must give the car back with a full tank of gas and pay Gertrude’s bus fare for the week, which is $50.
Ronald thankfully agrees. When the week is over, he gives the car back. However, Gertrude discovers that the gas tank is empty. Also, Ronald decided not to pay Gertrude the $50 because he is “short on money this month.”
Gertrude estimates that Ronald owes her approximately $150, and she is on a fixed income herself. However, what are Gertrude’s options? One option is that she can take Ronald to civil court. In civil court, the burden of proof hinges on what is known as the balance of probabilities. In other words, whose claim will the court believe, Ronald’s or Gertrude’s?
Gertrude would need to provide evidence that shows that Ronald borrowed the car. If Ronald chose to dispute Gertrude’s charges, he would try to show that he never agreed to pay for gas or add $50 to the amount at the end of the week.
Unfortunately, cases like this usually devolve into “he said, she said” arguments, with one individual’s words pitted against the other’s. The judge in civil court must decide whom to believe based on what is typically scant evidence.
Let’s take this example a little further. Perhaps Gertrude can establish that she lent Ronald her car for the week. Gertrude’s brother Gus witnessed Ronald driving the car daily, and Gus volunteers to testify in civil court.
Gertrude still must provide evidence of Ronald agreeing to pay her the $50 for gas. Then, Ronald can say that he never promised to pay for anything.
If Ronald lied in court, he would be committing perjury. However, the truth is that many individuals decide to perjure themselves to make their lives easier or hold onto cash or other items.
If Gertrude’s brother Gus had also witnessed the creation of the entire contract—including Ronald’s pledge to pay Gertrude—this could dramatically improve Gertrude’s chances of winning the case.
However, with no one to confirm that Gus agreed to buy Gertrude gas and pay her $50, Gertrude might be out of luck.
The amount of money is also important to consider here. Would Gertrude want to waste time in civil court for a full gas tank and a $50 bill? Perhaps not. But what if Gus had promised to pay her $1000 or more?
Are Written Contracts More Useful Than Oral Contracts?
Since enforcing an oral contract in court is both difficult and demanding, most attorneys recommend writing down the terms of every deal, no matter how large or small. Some oral contracts are enforceable in a court of law, but often the matter becomes very complex, no matter how trivial or significant the terms of the agreement are.
Despite the difficulties that can accompany hastily made verbal contracts, it is also true that oral agreements occur every day in the business world. An entrepreneur’s life is fast-paced, and business owners constantly network and make deals. Sometimes they seal these deals with a quick handshake or a phrase such as “Sounds good to me.”
Since verbal contracts are common, you need an attorney you can count on. At Nakase Wade, our legal team has experience dealing with and proving oral agreements. Contact our offices immediately if you have questions about oral agreements or have an ongoing problem with an oral contract.
What Are Some Common Questions Regarding Verbal Contracts?
Oral contracts are common, but they often create thorny legal issues in and out of the courtroom. While we recommend sealing deals in writing, our attorney also understands the importance of verbal agreements. As a result, we receive many questions about oral contracts, and here are a few common questions about these unique agreements:
What Are Oral Contracts?
Verbal contracts come in two forms: oral or written. Oral contracts are typically defined as:
- Two or more parties make an agreement based on terms that are communicated verbally.
For example, let’s say that Fitz and his wife decide to remodel their kitchen. A contractor named Jerel shows up at their home and gives them an estimate.
Fitz and his wife list out their main goals: a new sink, new cabinets, and new countertops. Fitz’s wife shows Jerel the materials they want to use and a few examples of what the couple likes. Jerel says that it will take $25,000 to remodel the kitchen. Fitz and his wife Judy both say, “that sounds good!” The couple is excited about their new kitchen.
The two parties have not signed anything, but Fitz and his wife have signed a verbal contract with Jerel, the contractor.
If Fitz and his wife do not pay Jerel, they default on the contract. The contract is violated if Jerel does not perform or finish the work or if his labor is not up to snuff. The parties can go to court to attempt to enforce the terms of the agreement.
Are Verbal Contracts Legal? Can Verbal Contracts be Proven?
The legality of oral contracts and their ability to be proven in a court of law are different concepts. For the contract to be proven, both sides have to acknowledge that it existed in the first place. If there is no evidence, then the contract only exists in peoples’ memories.
Individuals should assume caution when entering into oral agreements, especially if the terms of the deal are important to them. Oral contracts are unstable and notoriously difficult to prove. All it takes is for one party to say they “do not remember” or “that never happened,” and a case of “he said, she said” emerges.
Neither party can take the case to court when a dispute arises over a verbal contract. First, however, the court will ask for evidence of the agreement and evidence of the agreed-upon terms.
If one or both parties cannot prove that the contract existed, and there is no proof, then there may be no legal way to enforce the contract.
For example, Ned loans Paul $100 at a bar watching a football game. Paul says he left his ATM card at home and promises to pay Ned back next week.
When Ned and Paul see each other next week at the same bar, Ned asks for the $100. Paul plays dumb and says Ned must think of someone else because he never loaned him $100. Instead, Paul says, he was the one who loaned Ned $10 for a cab ride home.
It is unclear who is correct and who is lying in this example. Without proof, it is simply a case of Ned’s word against Paul’s.
What is the Statute of Fraud?
Put simply; all states enforce laws known as the statute of frauds. These laws differ from state to state and govern the nature of transactions and contracts. The Statute of Frauds clarifies what kinds of transactions must be documented in writing.
For example, in California, all real estate or land-based transactions must be put in writing or utilize a deed or similar document. The contract can be void if the parties do not respect these terms.
Before making a formal verbal or written deal, consider the Statute of Fraud in your state.
Can Oral Contracts Include Illegal Acts?
Just like written agreements, verbal agreements cannot include evidence of illegal acts. Illegal acts immediately make the contract void and unenforceable.
For example, Bobby sells Sue illegal drugs, and Sue promises to pay him $200 the next day. Sue never pays Bobby, and he wonders if he can take Sue to court.
The answer is no. No court will enforce a contract that includes federal or state law breaches in the United States.
Why Contact the Expert Legal Team at Nakase Wade?
Verbal contracts often create complex legal questions for our clients. We aim to answer these questions as completely as possible, so you can move forward with your business goals.
Hopefully, this article has helped to clarify some of the complicated issues surrounding oral agreements. However, if you still have questions or are involved in a verbal contract and need help, our experienced attorneys are eager to assist you.
We understand that entrepreneurs have enough to worry about without debating the pros and cons of verbal agreements. While we advise that business people write down the terms of important agreements, we also know that in our fast-paced world, many contracts are made quickly and sealed with a few phrases or a handshake.
Nakase Wade helps entrepreneurs achieve their goals and make the best of their business ventures. Our California business lawyers and corporate attorneys are experts at dealing with verbal contracts. When individuals default on oral agreements, stress is soon to follow.
Let us answer your questions and help you deal with the stress that often comes with verbal contracts, so you can focus on your business. At Nakase Wade, we believe that if our clients struggle with problems, there is always a legal solution. In addition, we care about our clients and want to see them continue to succeed. So contact us today, and together, let’s find out the best path to your business future.
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