“Oral Agreement”

“Oral Agreement”

“I’ll pay you back next week.”

“I’ll take all of this stock — just deliver it straight over.”

“Everything on the house today is on Master Zhao.”

These scenes may sound impressive, but what happens when someone backs out and a dispute arises? Are you simply out of luck because spoken words leave no proof?

Whether you are living or doing business in Australia, a verbal agreement you have reached with someone else can still be enforceable.

However, because there is a lack of written evidence to prove the terms between you and the other party, in practice many oral agreements are very difficult to enforce.

Is Your Verbal Agreement Legally Binding?

If you want to prove that you and the other party have formed a legally binding verbal agreement, generally speaking, you need to establish the three essential elements of a contract:

1. Offer and Acceptance (Offer and Acceptance):

All material terms of the contract must be clear and certain. If the verbal agreement is missing any material term or there is still room for negotiation, the agreement is not legally binding on the parties. Examples include the price of the products or services in a goods or services contract.

2. Consideration:

There must be something of value given. Consideration can be monetary, or it can take the form of labour or the delivery of goods.

3. Intention to Create Legal Relations:

Both parties must intend to be legally bound by the obligations set out in the verbal contract.

Promises made as a joke in everyday conversation are generally regarded as lacking the intention to create legal relations, so a joking verbal promise has no legal effect.

How Do You Prove a Verbal Agreement Is Enforceable?

If you want to enforce a verbal agreement, you must prove that the agreement exists.

The other party may dispute the existence of the agreement as a whole or of specific terms (such as the payment arrangement).

Verbal agreements are difficult to prove in court.

You and the other party will have different views on the terms of the verbal agreement.

Many disputes may come down to whose account of events is more credible.

If you want to prove that your verbal agreement is enforceable, you must provide written or oral evidence.

Written Evidence

Written documents are reliable evidence of the existence of a verbal agreement.

Written evidence includes:

emails or letters you sent to the other party confirming the terms of the agreement after it was reached;

emails or letters from the other party (if they are the debtor) to you (if you are the creditor) confirming that they owe you money and will repay it “soon”;

text messages between you and the other party discussing key terms of the agreement;

related documents such as purchase orders, invoices, receipts, delivery dockets or bank statements showing that monetary consideration was exchanged between you and the other party.

Oral Evidence

You can also rely on the oral evidence of other people. They can support your testimony or help you locate any written evidence.

If you have a witness who can confirm that you reached a verbal agreement, they can give evidence about the terms of the oral contract.

Such testimony is generally given in the form of an affidavit, which must be signed by the witness in front of a JP or a lawyer.

Why Should You Avoid Verbal Agreements?

Many people enter into verbal agreements, possibly because:

they are too busy to put the agreement in writing;

they trust a particular person or company based on previous dealings; or

they are used to not signing formal written contracts.

However, if a dispute arises, the situation can become very difficult.

Verbal agreements are generally vague and hard to prove, whereas a written contract not only clearly sets out each party’s obligations and responsibilities but may also provide a clear procedure for resolving disputes.

This effectively saves both time and money.

Key Takeaways

As long as you can establish all the essential elements of a contract, a verbal agreement is legally binding.

However, unless you have substantial written or oral evidence, you will find it difficult to prove that the verbal agreement exists or to enforce it against the other party.

Where possible, put any verbal agreement into writing, so that you can minimise the risk of costly disputes.