Will Verbal Agreements Hold Up In Court?

Although difficult to prove, verbal agreements hold up in court if specific requirements are met. A strong verbal agreement may be established with documents, receipts, emails, text messages, and money transferred.

Are All Verbal Agreements Binding?

After a hurricane tears through Southern California, Bob’s little beach house in San Diego is a mess. The wind has damaged the roof, and the front door has nearly blown off. To make matters worse, Bob lost his job at Burger Shack.

Bob’s neighbor Linda notices the condition of Bob’s house and feels bad for Bob and his pet dalmatian, Gumbo. Linda visits Bob on the rickety porch of his beach shack and offers to lend him $450.00 to help repair his house. Linda is elderly and on a fixed income, and Bob accepts her offer and promises to pay Linda back in a reasonable amount of time. The two neighbors shake hands on the deal, and the next day, Bob buys shingles to patch the roof and a new door at the hardware store.

The question that arises here is not whether or not Linda expects Bob to pay her back. Instead, the question arises: is Bob legally obligated to pay Linda back?

When two or more parties create an agreement without documenting it in written form, they have “signed off” on an oral contract or verbal agreement. However, the authority vested in these oral agreements can be difficult to discern, especially for those unfamiliar with the law.

The majority of verbal contracts are lawfully binding. Yet, some exceptions do exist. These exceptions depend on the way the parties constructed the contract and the purpose they constructed it for. Therefore, we recommend writing down the terms of every agreement individuals enter to avoid debate and impending disputes.

For example, we encourage independent contractors, employers, and employees to write down the terms of their employment agreements in an Employment Contract (also called a Service Agreement). Writing down the terms of all contracts is useful because even when oral agreements are legally enforceable, they can be difficult to prove successful in a court of law.

If Bob and Linda’s monetary agreement goes awry, for example, it may be difficult to prove that Bob owes Linda the $450 she loaned him for home repairs.

What Are the Six Essential Components of a Contract?

There are six elements that, combined, make a contract lawfully binding. These components include:

Offer and Acceptance
Legal Purpose
Consideration
Completion of Terms
Parties’ Consent
Capacity

These components must be in place for an oral contract to be binding. Let’s go back to Bob, Linda, and the example of the owed money to see how this works in the “real” world.

Offer and Acceptance. When one party makes an offer, and the other party accepts, that is a valid contract. Many individuals also refer to these actions as a “meeting of the minds.” This label is appropriate because both people meet and agree to the terms of the deal. In the above example, Linda offered to loan Bob money. This offer was based on Bob agreeing to pay the money back in a “reasonable” amount of time. Bob accepted Linda’s offer and promised to pay the entire $450 back after he fixed his door and roof. Linda also reminded Bob that she lives on a fixed income, and Bob promised to get the money back to her as soon as he received his next paycheck from Burger Shack.
Legal Purpose. The contract needs to have a legal purpose. In our example, Bob’s reason for borrowing money from his neighbor Linda is to fix his house after the storm damaged it. This basis means the contract between the two neighbors has a legitimate, lawful purpose. In the above example, if Bob borrowed money from Linda to buy and sell illegal drugs in Leucadia, the act’s purpose would be rendered illegal, and the contract would be void.

Consideration. The legal word “consideration” means something of value. The two parties must exchange something valuable, cash, or something else within the verbal contract. The money exchanged, or the valuable thing is called consideration. The item exchanged by the two parties must be legal. In the above example, Bob cannot replace the money with illegal drugs, false tender, or something else illegal. The $450 and Bob’s vow to return the money to Linda are examples of consideration in our example.

Completion of Terms. The contract’s terms must be clear, complete, and fully represented. Plus, there must be an agreement concerning: 1) The parties to the agreement, 2) The price, and 3) The parties’ obligation. In the above example, the terms of the agreement between Linda and Bob are evident because a) Linda loans Bob $450 for his broken door and leaky roof and nothing else, and b) Bob must pay Linda back $450 as soon as he gets his paycheck from Burger Shack.
Parties’ Consent. Sound-minded parties must agree to the agreement’s terms without being coerced. Rather, the parties should consent freely. The parties should also not deal with: a) Unjustified influence, b) Emotional duress, and c) Misrepresentation of the facts.

Capacity. To have the “capacity” to begin the contract, all involved parties must be: 1) A person that is at least 18 years old, and 2) The person is of sound mind. In the above example, Bob and Linda are both in their 60s, and neither suffers from dementia. Furthermore, neither Bob nor Linda were under the influence of any mind-changing substances when they made their verbal agreement, so capacity is achieved.

When Are Oral Contracts Not Binding?

In California, the Statute of Frauds lists the types of contracts that, to be enforced, must be written or recorded. These contracts include agreements for:

The sale of personal property for more than $5,000
A service that is unable to be performed during the lifespan of the person who promises to perform it
The sale of real estate
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 real estate sale or lease for longer than a year involving an agent or broker as a third party
Answering the debt or default of another person
Lending over $100,000 or providing the same amount of credit, not used for household, family, or individual expenses

Other contracts may be enforceable even if the parties only recorded them verbally. However, it can be challenging to prove that the oral contract existed without the help with a contract law attorney to make a full analysis.

These terms differ from state to state, so it makes sense to check the state’s Statute of Frauds where the parties created the contract.

What is the Difference Between a Verbal and Written Contract?

Many individuals prefer written contracts because, in verbal contracts, the chance that a party will not fulfill their obligations exists.

For example, let’s say Bob patches his roof and buys a new door but decides not to pay Linda back the $450.

Linda can take Bob to court to get her money back. The case would take place in civil court, and in civil court, the burden of proof is centered not on reasonable doubt but the balance of probabilities.

To win, Linda—or Linda’s attorney—has to utilize evidence to prove that Bob borrowed the $450 to pay Linda back. On the other hand, Bob can attempt to prove that he did not agree to pay the money back.

Cases like this often devolve into a “he said, she said” type battle, with one person’s word pitted against the other’s. Ultimately a judge will decide whether to believe Linda or Bob.

Using bank statements, let’s posit that Linda can prove she gave Bob the $450. Even if she does this, she does not have direct evidence of his vow to pay her back. Bob, on his side, can deny that he ever promised such a thing. Bob would be committing perjury, but many individuals deny things that have truly occurred, even in a court of law.

The presence of a witness—another neighbor, perhaps—who was there when Linda and Bob created the contract verbally would help Linda’s case immensely. But, on the other hand, with no witnesses to call to the stand, Linda might lose her hard-earned $450 and Bob’s friendship in the process.

Are Written Agreements Better Than Verbal Contracts?

Take it from Linda: we are all better off writing down the terms of our agreements. If Linda had documented not only the lent money but Bob’s vowing to pay her back, she could have prevented the dispute from occurring. Better yet, Linda and Bob could have both signed a contract that detailed the exchange and the details and terms of the deal.

In our example, Bob paid Linda the $450 back, and the two remained friends, but it is important to understand how this situation could have grown more complex and problematic.

While it is true that some verbal agreements hold up in court, we recommend always signing written agreements, especially when the consideration is valuable. For questions about oral contracts, or if you have a problem with a verbal agreement, contact the skilled attorneys at Nakase Wade.

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