Introduction
We often use verbal contracts in our day-to-day lives. We agree with persons and create an agreement without putting it in writing form. But sometimes, it creates confusion because when any disputes arise, then we have no written agreement reference to the deal. At that time, the question comes to our mind- are verbal contracts legally binding according to the law? In this article, we address the validity of the verbal agreement. Whether it is legally binding or not. What are the sick factors that you should face if the contract is not in written form? So, please stay tuned and read below;
What is a Verbal Contract?
The verbal contract is also like other contracts. It is made between two or more. But the form of this contract is verbal and not written. It is known by other names such as Verbal agreement, Oral contract, Handshake agreement, Etc.
The key factors that we should know before entering into the verbal contract are:
A verbal contract is a legally binding agreement if it meets the basic requirements of a valid contract. However, it is harder to enforce by law compared to other contracts.
- A verbal contract is a legally binding agreement if it meets the basic requirements of a valid contract. However, it is harder to enforce by law compared to other contracts.
- Sometimes, written contracts are mandatory for certain types of deals. At that time, the verbal agreements become ineffective by law.
- If we compare it to a verbal a written contract is more effective. Because all terms and conditions can be mentioned in it is missing in a verbal contract, and sometimes, oral understanding creates misleading and legal disputes. As a result, it vests the time and money of the contracting parties.
What makes a Verbal contract legally binding?
A verbal contract also has legal validity and can be legally binding. Some of the elements that make it a valid and legally binding agreement. These are given below;
An offer
An offer is a kind of proposal, given to either buyer or seller, to buy or sell goods or services. If an offer is accepted by the parties, it is treated as legally binding to them.
Acceptance
It is an action of agreeing to an offer given by the offeror. After an acceptance, the parties enter into a legally binding agreement.
Legality
Where the contract parties agree to enter a contract, that object must covered under the law.
Consideration
Consideration is the value exchange between an offeror and an offeree. It is crucial to a contract. Because an agreement is without consideration between the contracting parties, there is no legal validity of an agreement.
Intention
The intention of the parties must be clear regarding the contract. If the intention is missing in the contract, there is no legal validity.
Free will of the parties
The contracting parties must enter into the contract without coercion. They need to comply with the terms and conditions of free will.
Legal capacity
The legal capacity is a significant element of a contract. The contracting parties must have the legal capacity to enter into the contract. They should not have any mental disability, such as an insane or unsound mind. They should better understand what they are doing and what the result will be.
When is the verbal contract not valid?
As we discussed above, if specific fundamental legal requirements are met, then a verbal contract is not only valid, but it can also be enforceable. However, a verbal contract is not valid when a written agreement is legally required under the provision of the law.
In some cases, a written contract must required to complete the legally binding agreement. Those rules may vary in different jurisdictions, states, and countries. It also depends upon the type of contract that the parties want to enter. Some of the contracts are given below that must be put in writing form:
- Contracts related to real estate
- Agreements for paying off some other’s debts
- Contracts that are completed after more than one year
- Leases of real estate that are completed after more than one year
- Contracts over a certain amount ( that can be decided by the state or depends on the jurisdiction)
- Contracts related to marriage
- Contracts that terms go beyond life-long performance
When are Verbal Contracts suitable?
One thing we should note is that all contracts are suggested to be made in written form. However, in some cases, the verbal contract can be appropriated. Where the contracting parties know each other and the risk factors of that contract are bearable such as:
- When the parties enter into a contract of small or personal transactions. For example, if you are buying second-hand goods from relatives or friends, here the trust factor plays an important role. In that situation, you can avoid making a written contract. Moreso you are not paying a huge amount for that.
- At the time when you need short-term arrangements, for example, when you are looking for baby care or pet-sitting arrangement. Then you can go through a verbal contract.
- When the relationship between the parties is trusted, a verbal contract is suitable, for example, relations between family members.
Even after referring to suitable examples, you should advise keeping some records of transactions in writing form. Such as written recipes or notes. After All written contracts are the best practice for important transactions for various purposes. That can reduce the stress and risks in your life regarding the transaction.
Can Verbal Contracts challenged in Court?
The answer to the question is yes. If the court is well satisfied with all the terms and conditions of a verbal agreement with the evidence given by the contracting party, then a verbal can be challenged and enforced in court.
If any contracting party breaches a verbal agreement, the suffering party has a right to sue, but they need to prove with the evidence that the contract is breached. Several factors may be considered by the court while deciding the validity of a verbal contract, which are given below;
- The terms and conditions are based on the parties’ relaid of a verbal contract.
- Available evidence that supports the lawsuit
- What laws and jurisdictions will apply where a verbal contract is breached?
The verbal contract is much harder to prove in a court of law. Because there is no documentary evidence available for a verbal contract, that can specify the terms of the agreement and prove it in court.
How can you protect your legal rights while entering into a verbal contract?
If a verbal agreement is held up in court, proving it with proper evidence is not easy for the wronged party. We should know that without documentary evidence, it is very tough to establish a legal relationship between the contracting parties. That is why drafting proper terms and conditions in writing form of the contract is much more reliable for the contracting parties.
However, if you agree to a verbal contract, avoid making it in writing. There are some important tips for you that you need to Know:
- The first step is to collect all secondary documents, such as text messages, emails, receipts, and all kinds of correspondence, which are made in written form. That can protect you even if you do not put those terms in a written agreement and sign it.
- To make sure the terms and conditions of the contract are in written form. Send the copy to the other party of the contract. Make it in two copies and sign in both. Also, ask the other party to put their sign and return one copy to you.
- Find a trustable witness who agrees to sign as the witness of the agreement. If the other contracting party does not agree to this process, be careful it becomes harmful in the future.
Bottom line
As discussed above, Verbal contracts are legally binding and have legal validity under the law. However, proving its validity in a court of law by appropriate evidence is not easy. Sometimes, the contracting parties go through a verbal contract because the trust factor plays a significant role between them. In that situation, you need to protect your rights. You should make a written agreement after entering into a verbal contract.
