What’s a Verbal Contract, and Can You Enforce One?

March 28, 2024 • Contract Management • 5 minutes

Table of contents

  1. What is a verbal contract?
  2. Is a verbal contract legally enforceable?
  3. Best practices for verbal agreements
  4. Practical tips for navigating verbal contracts
  5. How to resolve verbal contract disputes
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Verbal contracts are more important than they might appear at first glance. The truth is, these spoken agreements play a major role in both personal and business interactions.

Here, we’ll provide you with a comprehensive understanding of verbal contracts, their legal standing, and practical tips for navigating them. Let’s start by defining a verbal contract.

What is a verbal contract?

A verbal contract is an agreement you make through spoken words rather than in writing. Unlike written contracts, these do not have a physical form but can still be legally binding. They are built on mutual understanding and agreement between parties.

Elements of a verbal contract

  1. Offer: One party proposes an agreement.
  2. Acceptance: The other party agrees to the terms.
  3. Consideration: There’s an exchange of value, like services, goods, or promises.

Differences between verbal and written contracts

Verbal contracts differ from written ones mainly in their form. While written contracts are documented and signed, verbal ones rely solely on the spoken agreement between parties. This difference can make verbal contracts harder to prove but does not reduce their validity.

Common scenarios for verbal contracts

You often encounter verbal contracts in daily life, perhaps without realizing it. For example, every time you hire a service provider for small jobs, you’re entering into a verbal contract. Oral agreements between small businesses and suppliers, or personal agreements like loaning money to a friend, can also be examples of verbal contracts.

Is a verbal contract legally enforceable?

A verbal contract, to be legally binding, must meet the following criteria:

  1. Mutual consent by all parties
  2. A clear offer
  3. Acceptance

Both parties should also have the capacity to enter the agreement, meaning they understand the terms and are of sound mind. The content of the verbal contract must be legal and possible to perform.

However, the Statute of Frauds requires that certain types of agreements be in writing to be enforceable. These include:

  • Contracts for the sale of real estate.
  • Agreements to pay someone else’s debt.
  • Contracts that cannot be completed within one year.

The main challenge in a verbal contract is proving its existence and terms. Without written documentation, the contract’s specifics rely on the parties’ recollection and honesty. This can lead to disputes over the agreed terms, complicating enforcement in legal settings.

Best practices for verbal agreements

When you create a verbal agreement, you need to focus on clear communication and mutual understanding. Here’s what you can do:

  1. State the terms clearly. Make sure all parties clearly understand what they agree to.
  2. Confirm understanding. Have each person involved confirm they understand and agree to the terms.
  3. Maintain consistent language. Use the same terms throughout the discussion to avoid confusion.

Witnesses and note-taking both play central roles in verbal contracts. A witness can lend extra credibility to your agreement. It’s also wise for you to take notes during the agreement. This creates a reference for the key points you discussed verbally.

It’s also best practice to follow up verbal agreements with written communication. Send an email or a text message summarizing the key terms after you’ve reached a verbal agreement. This provides a useful reference and can help clear up any misunderstandings later.

Practical tips for navigating verbal contracts

When you navigate verbal contracts, knowing the best practices can help you avoid misunderstandings and strengthen your agreements. Here are some practical tips.

Tips for business settings

  • State your terms clearly. In business, always express agreement terms explicitly.
  • Confirm understanding. Make sure all parties agree and understand the terms.

Tips for personal agreements

  • Clarify the agreement’s nature. In personal settings, distinguish between a casual chat and a formal agreement.
  • Maintain open communication. Discuss the terms openly to ensure mutual understanding.

Most importantly, be truthful with the other party. Your honesty is crucial in establishing and maintaining trust in verbal agreements. And commit to your word by upholding what you’ve agreed to verbally, to avoid disputes.

When to opt for a written contract

In some cases, a verbal contract may not be enough. For complex or significant financial agreements, you’ll want to go for a written contract. In long-term commitments, too, a written contract offers clarity and legal safety.

How to resolve verbal contract disputes

Disputes from verbal agreements often arise due to unclear terms or differing memories. Common problems include disagreements about what was agreed upon or whether a formal agreement exists.

When facing a dispute, here are steps you can take:

  1. Start with direct communication. Talk with the other party to clarify misunderstandings and negotiate.
  2. Document your discussions. Keep a record of all communications during this process for future reference.
  3. Seek mediation. If direct talks fail, involve a neutral third party to facilitate a resolution.
  4. Consider arbitration. As an alternative to court, arbitration allows a third party to make a binding decision.
  5. Consult a lawyer. If the dispute remains unresolved, get legal advice to understand your options.
  6. Prepare for litigation, if necessary. As a last resort, you might need to go to court to resolve the dispute.

Legal guidance becomes crucial if the first few steps fail. A lawyer can offer advice tailored to your situation and help you decide how to proceed.

Remember, the strength of any agreement, spoken or written, lies not just in the words exchanged, but in the mutual respect and understanding that underpin them. In the end, the true value of your agreements, verbal or otherwise, is reflected in the integrity with which you honor them.

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