How to Enforce a Verbal Contract

For a contract – verbal, oral, or written – to be valid and enforceable in court, the aggrieved party must prove in court: 1) An offer was made, 2) the offer was accepted, 3) value was exchanged, 4) the aggrieved party sustained damages.

Many self-employed individuals and freelancers wonder if verbal agreements are enforceable. Oral contracts are valid, but conflicts arise when there is no proof to support them.

Jeff runs his own small website design company, JZ Designs, from his home in Carlsbad, California. Over the past few months, Jeff has built a solid business but has yet to find a client of value. Then, on Friday, Tasha, in real estate in San Diego, calls Jeff for help with her website. The two discuss revamping Tasha’s site at length, and both seem to be on board. Jeff quotes Tasha $10,000 for the job, and Tasha agrees to send him the money on Monday.

Although Tasha has not paid him yet, Jeff celebrates by buying his wife the kitchen table and countertops she has long dreamed about. Then, Jeff spends $5,000 on the kitchen remodel, banking on the fact that Tasha will pay him his firm’s customary deposit—one-half the amount—on Monday.

On Monday, Jeff does not receive the payment. On Tuesday, he calls Tasha. She tells Jeff she is no longer interested in his services and that she has decided to do all the work herself.

Can Jeff enforce the oral contract with Tasha, and is he able to collect any damages?

When individuals are self-employed, they are responsible for every aspect of the business. Freelancers and entrepreneurs make deals, estimate prices, and sign contracts constantly, all for the sake of their companies.

Self-employed individuals often utilize verbal contracts, yet many find that oral agreements can lead to disputes among parties and costly, time-consuming breach of contract lawsuit.

Nowadays, customer feedback arrives rapidly through social media channels and other platforms. When parties do not fulfill the terms of a verbal agreement, or the terms of an oral contract are unclear, the business suffers.

If Jeff had defaulted on the deal with Tasha, perhaps she would write a negative review on Yelp, Twitter, or another platform. However, since Tasha is the person who reneged on the deal, what options does Jeff have?

Are Verbal Contracts Legal?

In legal terms, oral contracts are just as legitimate as written contracts. However, proof must exist to prove a verbal contract, and sometimes the solid proof is difficult to identify.

Jeff enjoys being the boss and sole owner of his website design company, but he is always on the phone: making deals, offering incentives, and making promises. He knows he should write everything down, but sometimes he feels like he doesn’t have time.

For Jeff, the deal with Tasha appeared legitimate. She was interested in his services and complimentary of his design talents. So when he told her the project cost was $10,000, Tasha said two things: “That sounds reasonable,” and “I accept.”

What are Jeff’s rights and responsibilities regarding this verbal contract? Is Tasha liable for opting out of the deal, or is Jeff out of luck?

Often, the answers to these questions depend on the details of each case and are, therefore, subjective.

What is Required to Create a Verbal Contract?

Three elements are needed to create an oral contract:

The Offer

The offer occurs when one party suggests the terms of the agreement to the other. These terms must be clearly stated. In other words, an individual should be able to understand and follow the terms logically.

The offer does not have to include every term involved in the deal, but it does have to include the terms that are crucial to the agreement, usually including:

-The contract’s parties

-The services or goods being provided

-When the parties will provide the goods or services

-The price

In the example of Jeff and Tasha, Jeff offered to design Tasha’s new website, and Tasha accepted.

Sometimes the person receiving the offer replies with a new offer. So, if Tasha said to Jeff, “How about I pay you $750 for the new website,” this is considered a counteroffer.

Counteroffers can quickly occur when parties make deals, and the specific language used can significantly impact the parties involved. This difference is another reason why verbal contracts can prove hard to enforce: one party disputes the wording of the offer or claims that the offer never existed in the first place.

When Jeff finally speaks to Tasha, she tells him she does not remember formally accepting his offer. Instead, Tasha remembers them speaking hypothetically about the website and an estimated cost but does not agree with Jeff that he made the offer, and she accepted it. The difficulty with verbal agreements such as Jeff’s and Tasha’s is that they can devolve into a case of “he said, she said.”

The Acceptance

One party must accept the offer to create a contract that is binding. This acceptance occurs when one party agrees to the alternate party’s offer and the terms of that offer. Acceptance can also occur to a counteroffer.

When one party accepts the offer in a verbal contract, the actual words used are important. While acceptance may occur alongside simple words and phrases such as “that sounds good,” “you’ve got a deal,” or even simply “I accept,” if there is a dispute, the court will analyze the language used.

In the case of a disputed verbal contract, often, the involved parties have their version of what happened. Unfortunately, this conjecture can make it difficult to figure out exactly what occurred when the individuals or businesses made the deal.

Sometimes, the emphasis in an oral agreement is not on the words but on a common behavioral gesture: the handshake. For example, shaking hands often deals with oral contracts and signals that a deal exists. The handshake is a powerful signal that shows two things:

-That both parties approve the terms of the contract

-That a deal has been made

However, even handshakes can be disputed by parties when they look back on the deal, especially if one party disputes the agreement. Shaking hands before a witness can help with these types of disputes.

Jeff and Tasha were on the phone when they made the deal, so a handshake was not on the table. Plus, a witness can’t have been there for both sides of the call, so Jeff probably will not be able to provide any witness testimony.

Consideration

A legal term, consideration simply implies that both parties are “giving something” in exchange for the contract terms. Usually, consideration represents the exchange of money for services or goods.

If only one party gives something up, then the arrangement is based on a gift instead of a contract. The arrangement does not translate to a valid contract when one party gives another a gift. Contracts endow both parties with rights and ask both sides to meet obligations.

What is Needed to Sue for Breach of Contract?

Individuals must be able to prove that the oral contract existed to sue for breach of contract. However, overcoming the burden of proof can be challenging if, as in Jeff’s case, the only record of the interaction is a phone call.

If, following the talk with Tasha, Jeff had emailed her to summarize the agreement, and Tasha had responded, his claim would have been stronger. If Jeff had included a proposal with the email and Tasha had approved it, the claim would be stronger still.

However, in Jeff’s case, he does not have much evidence aside from the phone call, and there is no witness. He may have spent $5000 on a new kitchen, but this was preemptive since Tasha had not yet paid his company the deposit.

If Tasha had paid Jeff the $5000 deposit, there would be a paper trail for the court to follow. However, without evidence, the case will be reduced to a “he said, she said” situation, especially if Tasha denies that the agreement ever took place.

The parties’ actions are one of the best ways to prove that a verbal contract exists. For example, let’s say Tim agreed to sell his car for $4000 to Dave. That day, Dave wrote Tim a check for $4000, and Tim dropped the car off at Dave’s house. These actions show that the deal took place and that the two men exchanged money for a vehicle. However, the challenge remains in showing the judge that these actions took place.

What Contracts Must Be In Writing?

Verbal agreements consisting of services or goods in exchange for specific consideration are usually valid contracts. However, the Statute of Frauds dictates that specific types of contracts must be written to be valid.

The purpose of the Statute is to prevent deceitful conduct among the parties involved and is usually applied when verbal agreements feature long timelines or elevated stakes.

For example, contracts that fall under the Statute of Frauds include:

Sales of property
Agreements to pay another individual’s debt
Property transfers following the death of an owner
Leases of property that last over one year
Contracts for over a certain amount of money (differs by state)
Contracts that will extend past a year
Contracts extending longer than one or both parties’ lifetimes

Oral contracts are not enforceable if they fit one of these categories. Instead of a verbal agreement, these situations require documentation.

However, if the verbal agreement lands within the terms of the Statute of Frauds, it can still hold up in court if:

One party partially conformed to its terms
One party relied on the other party’s promise and suffered as a result.

The plaintiff in the case must provide the evidence and convince the court.

What Defines the Statute of Frauds in California?

In California, the Statute of Frauds includes agreements for:

The sale of personal property for more than $5,000
Real estate sales
A property mortgage
A sale of goods over $500
A contract that cannot be finished in one year (for example, a job lasting 18 or 22 months)
A service that is unable to be performed during the lifespan of the person who promises to perform it
Lending over $100,000 or providing the same amount of credit, not used for household, family, or individual expenses
Answering the debt or default of another person
A real estate sale or lease for longer than a year involving an agent or broker as a third party

Depending on where they live, it makes sense for entrepreneurs, freelancers, and small business owners to research their state’s statutes and figure out how to structure contracts properly.

How Can Individuals Create An Effective Verbal Contract?

We recommend recording all agreements in writing to avoid disputes. However, verbal agreements can occur quickly and are sometimes unavoidable in the fast-paced business world. Here are a few tips to help create successful oral contracts while avoiding costly conflicts.

If witnesses are involved, contact them and make sure that they write down what they saw or heard.
Locate and back up all pertinent documents: emails, quotes, faxes, and texts. Any and all recorded documents can help prove the agreement took place.
Take notes outlining the terms of the agreement and back them up.

The main issue with verbal contracts is that they mainly exist in peoples’ memories, and our memories differ. Unfortunately, some individuals have poor memories, and others are dishonest.

When Jeff looks back on his verbal contract with Tasha, he regrets his actions but hopes to learn from them. Jeff decides not to pursue the contract but resolves to get every agreement down in writing from here on out. Luckily, he signs a new deal the next day and can pay off his credit card and still remodel the kitchen.

In the future, Jeff will make sure that clients pay their deposits before he spends money he doesn’t have yet. Often, when clients refuse to pay deposits or sign contracts, they are unreliable and perhaps cannot be trusted.

If Jeff felt he had a stronger case based on witnesses or evidence, he would have contacted an experienced attorney for help with the case.

Contact Nakase Wade for Experienced Help With Verbal Contracts

Verbal contracts are not preferable to oral contracts, but they are sometimes necessary. The California business attorneys at Nakase Wade understand that verbal contracts can be difficult to prove, but we are always up for the challenge.

Our lawyers understand that the damage can be difficult to handle when the other party breaches any type of contract. Before losing out on the agreement and sacrificing your hard-earned money, your business, or both, get in touch with the contract experts at Nakase Wade for a free consultation.

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