Are Verbal Contracts Binding: Everything You Need to Know
Though most people associate contracts with written documents, verbal contracts are also legally binding if they are reasonable, fair, and made in good faith.3 min read
People commonly wonder, "Are verbal contracts binding?" Verbal contracts and agreements are typically legally binding if they are reasonable, fair, and made in good faith. Even though most people associate contracts with written documents that must be signed, very few contracts are actually required to be written to be valid.
Enforcing a Verbal Contract
One of the main reasons verbal contracts are approached with caution is they are much harder to enforce than written contracts. A written document can clearly be presented as evidence in court. However, if a verbal contract is brought to court, there is always a chance that one party is lying. If both parties lie about a contract, it creates a legal impasse for the court.
As long as a verbal contract is rational and conscionable, it is valid. An example of this is if you borrow a car from a friend. There is an expectation that you will return the car in good working order. Your friend doesn't make you sign a document saying you will return the car without a scratch, but the agreement is understood with words and the action of your friend giving you the keys.
Although most verbal contracts are legally binding, there are occasions where that is not the case. If a contract isn't constructed properly or doesn't have a legal purpose, it will not be binding.
Taking it a step further, some contracts don't even have to be written or spoken to be valid. Implied contracts happen every day. When you go into a store and make a purchase, you are receiving goods in exchange for money. The agreement is implied as soon as you take your items to purchase to the cash register.
Requirements for a Binding Contract
Even though verbal contracts are difficult to enforce in court, both parties should discuss enforceability. Adding the following elements to a verbal contract can improve its validity and enforceability:
- Mutual consent and understanding, which means both parties involved are aware of what they are agreeing to. If you hire a landscaper to work on your yard, both parties should understand what kind of work is included and what the cost will be.
- Offer and acceptance, which happens when one party offers something and the other party accepts and agrees to the conditions.
- Mutual consideration, which means that valuable goods or a service must be exchanged.
- Performance, which means that both parties are obligated to perform the duties they've agreed to.
- Good faith, which means both parties agree to not break the law or try to cheat the other party.
- Lawful purpose, which states the purpose of the contract must be lawful. Even if a verbal contract meets all the other requirements, if it is a contract to do something illegal like steal a diamond ring, it is considered invalid and unenforceable.
- Lawful consideration, which means money or something else valuable must be exchanged between the parties. Whatever is being exchanged must be legal. For example, exchanging money for a service is legal, but exchanging illegal drugs for the same service creates an unenforceable contract.
- Certainty of terms, which states that a contract's terms have to be clear and complete. Terms cannot be vague or easily misrepresented.
- Free consent of the parties, which means that both parties are of sound mind and freely agree to the terms of the agreement. One party can't be coerced into agreeing to something.
Burden of Proof
One of the difficulties of verbal contracts is that it is hard to overcome the burden of proof if the issue is ever brought to court. However, this can be fixed if there is any proof that the contract was followed. One way this can be done is if the plaintiff presents evidence of one party performing their responsibilities of the contract, such as a person mowing the lawn that they verbally agreed to do.
If there is proof of payment, such as the other party paying the agreed-upon $20 for mowing the lawn, that can also prove that there was a verbal agreement. A person who was present when the verbal agreement was made can also serve as a witness to verify that there was indeed a valid agreement.
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