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Is a Verbal Agreement Binding and Can It Hold Up in Court?

Is a Verbal Agreement Binding and Can It Hold Up in Court?

Does a verbal agreement have the same legal force as a written agreement? Get the answers you've been searching for in our guide.

5th November 2021
Reading Time: 8 minutes

When most people think about entering an agreement, they usually think of a lengthy contract.

However, a lengthy contract isn’t the only type of agreement out there. In fact, many people are entering into agreements every day, without even placing them into writing.

Think about it — have you ever told someone you’ll do a certain act and shaken their hand? Maybe you’ve even said “let’s make this happen” or “you’ve got a deal.” 

If you have, then you may have created a verbal agreement. 

But, is a verbal agreement binding? Do you have to uphold every verbal agreement you make?

In this guide, we delve into the world of contract law to answer this pressing question. 

Read on to find out whether a verbal agreement can hold up in court.

Table of Content:

What is a verbal agreement?

Put simply, a verbal agreement is any sort of agreement created by word of mouth. So, it’s quite literally — an agreement made verbally. In other words, it’s not put into writing and is simply entered into via spoken communications. 

Many people symbolise that a verbal agreement is present by shaking hands or saying “we’ve got an agreement” but it’s not really necessary.

In reality, we enter into verbal agreements every day without even realising it.

When you order food at a restaurant, you’re entering into a verbal agreement to pay for that food. When you hire a plumber or a landscaper to do some work on your house, you’re entering into a verbal agreement to pay them for their professional services. 

But, what happens when you break a verbal agreement? Well, that all depends on whether or not that verbal agreement was legally binding.

Can verbal agreements be legally binding?

YES — a verbal agreement is a type of contract that can be legally binding. But, it’s important to realise that not all verbal agreements will be. 

It’s the same for written agreements. Some written agreements will be legally binding and others won’t be. It all depends on the substance or contents of the agreement itself and whether or not the elements of a contract are present.

Therefore, whether your agreement is verbal or written, if your agreement has all the elements of a binding contract, then it’ll be binding.

So, what are these elements? Find out below.

is a verbal agreement binding

Elements of a binding contract

As mentioned above, for a verbal agreement to be legally binding it must have all the elements of a contract. 

There are 5 elements of a binding contract, they include:

  • Offer and acceptance
  • Consideration
  • Intention to create legal relations
  • Legal capacity 
  • Certainty 

We go through each of these elements in more detail in the paragraphs below.

Offer and acceptance

Offer and acceptance are the first elements that must be present to prove any agreement, verbal or written, is legally binding.

Firstly, there needs to be some ‘offer’ — this forms the crux of the agreement. 

In other words, the offer is the whole reason why the agreement exists in the first place. If you have an agreement to buy a TV, the offer is ownership of the TV. If you agreed to sell your property, the offer is ownership of your property. 

Secondly, there needs to be clear ‘acceptance’ of the agreed-upon offer. 

Acceptance happens when a party agrees to follow the terms of the contract. In verbal agreements, acceptance is usually expressed through words like “I agree” or “you’ve got a deal.”

But, acceptance can also be non-verbal or implied through actions, such as a handshake or simply beginning to act out the agreed-upon terms. 

Why are offer and acceptance such an important element? Well, it shows that both parties have had a ‘meeting of the minds’, which basically means both parties have come to a basic agreement. 

Consideration

This is one of the most important elements in creating a binding contract. In fact, without consideration, agreements will not be legally binding at all. So, it either makes or breaks the legality of a contract.

Consideration’ is the value given in exchange for the agreement being carried out. So, it’s essentially the price you’ve paid for the contract to come to life. 

In general, the payment of money will satisfy consideration. But, money isn’t the only form of acceptable consideration. For instance, you may give the other party a piece of jewellery as consideration for the agreement. 

So long as the object or money has value, it can be the ‘price’ or consideration of the contract.

Just remember, a verbal or written agreement cannot be legally binding if consideration isn’t present. 

Intention to create legal relations 

For any agreement to be legally binding, there must be an intention to create a legal relationship. 

How do you show this? 

Well, for written agreements, the courts will look to the agreement itself and the conduct of the parties. Usually, written agreements will expressly state whether or not there is an intention to create legal relations. 

However, as verbal agreements have no such written document to look to, the courts will simply look at the conduct and behaviour of the parties, as well as the setting in which the agreement took place.

In a commercial or business setting, there is generally no problem in proving this element as a commercial setting supports the idea that commercial parties usually intend to create legal relationships.

However, what happens if you’re talking business whilst having a few beers at a pub and you enter a verbal business agreement? 

Well, the circumstances behind the making of this agreement i.e. drinking at a pub, can stand as solid evidence against an intention to create legal relations as the setting the agreement was made is simply too informal and social — not an ideal setting for creating legal relations. Such an informal setting can consequently, go against a finding to create legal relations.

Even if all the other elements for creating a legally binding agreement are present, if there is a lack of intention to create legal relations, the whole agreement can unravel. 

Legal capacity 

Any agreement you make must be with people or businesses who have the capacity to enter into a legally binding contract.

Capacity’ is simply the legal ability to enter into a binding agreement. If an agreement is made with someone without the correct capacity, then that agreement will cease to exist.

Most individuals will have the correct capacity to enter binding agreements. However, there are a select few individuals who don’t. 

Accordingly, the following individuals lack legal capacity:

  • Minors under 18 years of age
  • Individuals with a mental disability
  • Intoxicated individuals
  • Individuals who are bankrupt

Certainty

This is another important element that’s a necessity in creating a legally binding agreement. 

Certainity’ refers to the fact that the terms of the agreement must be clear and cannot be vague as all parties must know what their agreed-upon responsibilities are.

For written agreements, it’s usually simple to ascertain whether the agreement document is certain or not, as everything will be expressly written and explained. 

However, verbal agreements are a different story. As verbal agreements only rely on what each party represents them to be, it’s almost like a ‘she said, he said‘ type of situation. Therefore, it can be difficult to discover what the actual terms of the agreement were. 

Of course, if either party disagrees as to what the terms of the verbal agreement were, then the agreement cannot be seen as ‘certain’ from a legal perspective. 

If you do make a verbal agreement with someone, take extra care ensuring you both understand any specific terms of the agreement. In other words, make sure you’re both on the same page.

Difficulties in proving your verbal agreement is legally binding

is a verbal agreement binding

Now that you know how to create a legally binding agreement, it’s important to cover the common difficulties associated with verbal agreements.

Generally, if you can make out all 5 of the elements above, then your agreement may be legally binding, even if it’s verbal.

However, when cases questioning a verbal contract’s legality are before the court, certain difficulties can arise.

The major difficulty with verbal contracts is — proof. 

‘Proof’ is actually the main reason individuals and businesses alike prefer written agreements over verbal ones. In fact, even if you know all 5 elements are present, it can still be difficult to persuade the court of this without written documentation or written evidence.

How to prove a verbal agreement exists?

If you’re trying to prove you have a legally binding verbal agreement, you’ll likely need to give oral evidence or a witness testimony in court. You’ll have to explain the details of when the agreement was made, what was said, where you were etc. 

However, even this is not generally sufficient to prove you had a verbal agreement. It’s basically one person’s word against the others. So, think about any evidence you may have to support the fact there was an agreement in place. 

Maybe you have text messages, emails, purchase orders, or you’ve made a payment to the other party for consideration. Do you have a witness that can attest to knowing an agreement exists? 

Basically, you should use any evidence you can muster up to prove you had an agreement in place. Of course, this can be difficult and take a lot of time to gather, but it will help you in the long run.

Burning questions about verbal agreements 

What types of agreements are legally required to be in writing?

Generally speaking, most agreements can be verbal and aren’t legally required to be in writing. However, there are a few types of agreements that must be in writing. The following types of agreements must be in writing to be legally binding:

  • Agreements regarding interests in land, i.e. agreements made to buy, sell or mortgage property (both land and a house)
  • Financial agreements or credit agreements
  • All types of deeds
  • Assignments of copyright protection
  • Payment orders 

Can I sue for breach of a verbal agreement?

Well, you can take action against a party who fails to live up to a legally binding agreement, including a verbal agreement. 

However, as mentioned above, you should ensure that all the elements of a legally binding contract are first present. If they aren’t, you may not be able to take action against the breach of your verbal agreement.

Commonly, when an agreement is broken or breached, the disadvantaged party will usually claim either specific performance or monetary compensation, known as damages, for the breach.

A written agreement is always best

In an ideal world, most transactions and agreements will be in writing. Generally, the larger and more complex the circumstances the more likely you are to benefit from having a contract in writing. 

A written agreement has a lot less difficulty in regards to proving its legally binding nature. 

If you need a written agreement, browse through our extensive legal document library of 330+ documents and agreements. You won’t have to worry about spending hours on the drafting up of your agreement, our agreements can be customised in a matter of minutes!

However, if your agreement is a bit more complex, you can get in touch with a contract lawyer. Ultimately, whilst a verbal agreement is technically binding, they are hard to prove and there are huge benefits from having the specific terms and conditions set out in writing.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

Author
Mai Sarkissian

Mai is a Digital Marketing Coordinator at Lawpath, working as part of the Content Team. She is in her final year of a Bachelor of Laws degree at the University of Wollongong. She is interested in Business Law and Employment Law.