1. Elements of a Verbal Contract
2. Limitations and Complications of Verbal Contracts
3. Verbal Contracts Versus Written Contracts

Verbal contracts are valid and legally binding as long as the basic elements of a contract are met. Most people tend to associate contracts with written or printed legal documents that are signed by all parties or stamped by notaries. However, only a few kinds of contracts are actually required by statute to be written. Verbal contracts and oral agreements are legal; however, they are often not utilized for significant agreements as they commonly present difficulties in enforcement.

Elements of a Verbal Contract

Verbal contracts are difficult to legally enforce; however, the parties can include the following elements into their contract in order to make it more likely to be enforceable.

  • Mutual consent and understanding: All parties understand the terms of the agreement and are capable of making decisions. For example, if a person hires a contractor to do landscaping work, both the person hiring and the contractor understand exactly what they are agreeing to, including services and prices.
  • Offer and acceptance: One party is offering something that the other party may accept under specific circumstances or conditions.
  • Mutual consideration: An exchange of valuable goods, rights, or services must occur.
  • Performance: All contractual parties have specific duties to perform in addition to the mutual consideration.
  • Good faith: All parties should act in accordance to the agreement without the intention of cheating each other or breaking the law.

Limitations and Complications of Verbal Contracts

The most pressing issue of a verbal contract is the ability to enforce it. If taken to court, the court must be able to understand the key terms of the contract in order to enforce it, which may be extremely difficult if the two parties claim to have said different things. The parties may not agree on the terms of the contractual agreement, or even that there was a contract in the first place. There is always the chance that one of the parties may lie about the terms of the agreement. In some instances, all parties involved may actually choose to be dishonest, which will prevent resolution of the case in the court. Thus the party pressing for enforcement must have the ability to prove the terms of the contract to the court.

The statute of limitations is another issue with verbal contracts. Although the statute of limitations may vary by jurisdiction, in general, it is much shorter for verbal contracts than written contracts. This is due to the need for evidence to be fresher in the minds of all parties and witnesses.

How does one prove a contract even existed? A party may choose to use evidence of the parties' actions, such as proof of services rendered or payment made. If another party was present when the contract was generated, he or she may be called to court as a witness. Written communications that reference the agreement may also be used.

Many jurisdictions require certain contracts to be written. Under state law, these contracts may include the sale of real estate, marriage, and contracts promising to account for the debt of another entity. The Statute of Frauds states several contracts to be enforceable only in writing, such as contracts that cannot be performed in under a year, contracts for the sale of goods over $500, and contracts for the sale of land. The Uniform Commercial Code governs contracts related to the sale of goods and requires that any sale over $500 must be in writing.

Verbal Contracts Versus Written Contracts

Although verbal contracts are legal and valid, it is always safest to procure contracts in writing. While many agreements may be reached verbally, it is best to formalize the contract into writing. By putting the terms into writing, many of the issues related to verbal contracts can be avoided. All parties will be able to reference the agreement should an issue or disagreement about terms arise. In addition, it's far easier for a court to consult a paper in front of it than to determine the nature of a verbal agreement.

A lawyer can be consulted in order to draft or review a contract. The lawyer will be able to ensure that certain terms are included within the contract that protect the client's legal rights and interests. In addition, a lawyer can help clarify the client's responsibilities and legal obligations under the contract.

If you need help understanding, drafting, or reviewing a contract, 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.