Is A Verbal Agreement Legally Binding?

Written by J. Hirby and Fact Checked by The Law Dictionary Staff  

Verbal agreements and oral contracts are generally valid and legally binding as long as they are reasonable, equitable, conscionable and made in good faith. Although most people associate contracts with legal documents printed on paper for the purpose of getting them signed and stamped by notaries, the fact is that only a few types of contracts are required by statute to be written.

The reason oral contracts and verbal agreements are often looked warily upon is that they tend to present difficulties when it comes to enforcement. Contracts that are clearly written and executed are easier to present as evidence in court than the testimony of the contractual parties. It is also challenging to dispel contract defects when they are not in writing. When oral contracts are taken to court, there is always a risk of one of the parties lying about the terms of the agreement. In some cases, all parties may choose to be dishonest about the terms of the contract and thus create a legal impasse for the courts.

Some contracts are actually silent and do not require words to be spoken or written. Implied contracts are wordlessly carried out all the time; when you go to a convenience store and purchase a carton of milk, for example, you are accepting goods in exchange for currency. The transaction is implicit the moment you take the carton of milk to the register.

How to Make a Valid Oral Contract

Although oral contracts are difficult to enforce in court, the parties should make a concerted effort to discuss enforceability, which can be achieved by incorporating the following elements:

- Mutual consent and understanding, which means that both parties are cognizant about what they are agreeing to. If a woman hires a contractor to paint the interior of her house, both parties must understand exactly how many rooms and living spaces are to be painted.

- Offer and acceptance, which means that one party is proposing something that the other party may accept under certain conditions.

- Mutual consideration, which means that there must be an exchange of valuable goods, rights or services.

- Performance, which means that the contractual parties have certain duties to perform in addition to the mutual consideration.

- Good faith, which means that the parties should not attempt to enter into a verbal agreement to cheat each other or to break the law. It is important to remember that certain jurisdictions may require certain contracts to be written; for example, real estate purchases.

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