Key Takeaways

  • Verbal agreements can be legally binding but are harder to prove and enforce than written contracts.
  • Small claims court allows enforcement of verbal contracts with sufficient evidence.
  • The Statute of Frauds mandates certain agreements be in writing to be enforceable.
  • Intercompany arbitration is a private dispute resolution process used mainly between insurers to avoid litigation.
  • This form of arbitration is governed by organizations such as Arbitration Forums, Inc. and is commonly used in subrogation cases.
  • Intercompany arbitration can streamline claim resolution between businesses and reduce costs and court burden.

Many people often wonder, “Do verbal agreements hold up in court?” This is a difficult question to navigate, as it often depends on the situation. Theoretically, yes, verbal agreements will hold up in court in many situations—but not all. They can be difficult to prove if one party decides to be dishonest in the event of legal proceedings.

Is a Verbal Agreement Legally Binding?

A verbal agreement and an oral contract are, in general, legally binding agreements if they are equitable, conscionable, reasonable, and performed in good faith. While most will associate any legal agreement with a document on paper that has been signed and stamped by a notary, there are only a few contract types that must be written to be enforceable.

Many people are wary of verbal agreements and oral contracts because they can often be hard to enforce. A written contract is a tool and is more easily executed than any verbal agreement. It is also useful in court to the contractual parties testifying.

It can also be hard to determine defects in the contract if it is not in writing. If an oral contract goes to court, the risk of one side lying about the agreement is a concern. All parties to the contract could be lying about the terms, creating a major issue for the court, likely resulting in the case being thrown out.

There are some forms of contracts that are silent and do not need any words to be written or spoken. An implied contract is carried out without words often. When you go to the store to buy a gallon of milk, you are accepting a good in exchange for money. The transaction at the register is implicit once you bring your milk to the cashier.

Oral contracts can be enforced, although many people believe differently. They are not often in the best interest of either party and can end up in a battle of he said, she said. If there is enough evidence, however, the court will enforce such an agreement. The Statute of Frauds, however, is one major exception.

The Statute, which has been adopted in almost all U.S. states, will require a contract in written form in:

·      Sales of real estate

·      Leases of real estate that are longer than a year

·      Property transfer after the death of the owner

·      Agreements to pay debt for someone else

·      Any contract that takes more than a year to complete

·      A contract that will last beyond the life of at least one party

·      A contract that involves and exceeds a specified amount of money, which varies by state

Courts will not typically enforce an oral contract in any of these instances. There will have to be a written document signed by all parties to be enforceable.

There are some exceptions to the Statute of Frauds. An oral contract that is in the terms of the Statute will still be enforced as long as:

·      One party has partially complied with the terms

·      The plaintiff has relied on the promise of the defendant and encountered a form of detriment

The plaintiff will have the burden of providing any evidence of these situations.

Contract law is not favorable of oral contracts. They can be difficult to prove. They can also be used for fraud. It is best to get any agreements in writing.

Evidence Required to Prove a Verbal Agreement

Verbal agreements rely heavily on the available evidence to establish their validity. Courts may consider the following forms of evidence:

  • Witness Testimony: Individuals who witnessed the agreement being made.
  • Actions Taken: Behavior or actions by both parties indicating they adhered to the terms.
  • Related Documentation: Emails, text messages, or other written communications referring to the verbal agreement.
  • Payment Proof: Bank statements, checks, or receipts showing a transaction relevant to the agreement.

The burden of proof lies on the party asserting the existence of the contract. Strong evidence can significantly bolster the case.

Elements of a Contract

There has to be an offer and acceptance of that offer in a contract. One party has to propose a deal and the other party has to accept it.

Consideration is an important element. It means that both parties will have to provide something in exchange for a contract. There also needs to be mutual assent. This simply means there has to be a hashing out or meeting of the minds.  All parties have to understand how the contract is going to work.

To ensure that the contract will hold up in court, there can be no valid defense to the enforcement. An example would be a party being sued by a minor. The contract also cannot be enforced if one party claims the contract was fraudulent or a result of duress.

How Verbal Agreements Are Enforced in Small Claims Court

Small claims courts are designed to resolve disputes efficiently, including those arising from verbal agreements. Here’s how the process works:

  1. Filing a Claim: Start by submitting a claim in small claims court detailing the verbal agreement and alleged breach.
  2. Presenting Evidence: Provide all available evidence supporting your claim, such as text messages, receipts, or witness testimony.
  3. Defendant’s Defense: The other party can contest the claim by presenting their own evidence or challenging your interpretation of the agreement.
  4. Judgment: The court evaluates the evidence and delivers a binding decision.

While small claims courts are less formal, it is advisable to organize your case meticulously to improve your chances of success.

What Is Intercompany Arbitration?

Intercompany arbitration is a method of resolving disputes between two or more insurance carriers or affiliated business entities without resorting to litigation. Instead of filing a lawsuit, the involved parties submit their dispute to a neutral arbitration body, such as Arbitration Forums, Inc., which administers many intercompany arbitration cases in the United States.

This process is most commonly used in subrogation claims, where one insurance company seeks reimbursement from another insurer after paying out a claim on behalf of its policyholder. For instance, if two drivers insured by different companies are involved in an accident, their respective insurers may disagree on fault or the amount of damages. Rather than litigating, they use intercompany arbitration to resolve the matter efficiently.

Key features of intercompany arbitration include:

  • Binding decisions: Arbitration rulings are final and binding, with very limited grounds for appeal.
  • Neutral forums: Arbitrators are typically selected from a pool of neutral professionals with expertise in claims handling or law.
  • Cost-effective: It’s less expensive and faster than traditional litigation.
  • Standardized rules: Organizations like Arbitration Forums provide procedural rules to streamline the process.

This private dispute resolution mechanism promotes cooperation and efficiency between businesses, helping them avoid lengthy legal battles over relatively small claims.

Frequently Asked Questions

  1. What is intercompany arbitration?
    Intercompany arbitration is a dispute resolution process used primarily between insurers to resolve claims without litigation, often through a neutral arbitration body.
  2. Who typically uses intercompany arbitration?
    It is most often used by insurance companies handling subrogation claims, but it can also apply to other business disputes between affiliated or non-affiliated companies.
  3. Is intercompany arbitration legally binding?
    Yes. Decisions made through intercompany arbitration are typically final and binding, with limited opportunities for appeal.
  4. How does intercompany arbitration differ from court proceedings?
    It is a private process, generally faster and less costly than court litigation, and does not involve a public trial.
  5. Can intercompany arbitration be used outside the insurance industry?
    While most common in insurance disputes, the principles of intercompany arbitration can apply to various industries if the involved parties agree to arbitrate instead of litigate.

If you need help with intercompany arbitration, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.