Are verbal agreements legally binding?

The short answer to the above question is yes, but subject to a few formalities being met.

In its simplest form, a contract is an agreement between two or more parties that is intended to be enforceable at law.  Just because an agreement is not in writing does not mean that it will not be enforceable by a party to it.

There are only a number of contracts that must be in writing in order for them to be valid and enforceable and those include, contracts for the sale of land and contracts for the sale of a motor vehicle from a licenced dealer or trader, and guarantees.

When will a verbal agreement be binding?

In order for any contract to be binding at law there are a few essential elements which must be satisfied in that respect and they include:

• An offer and acceptance;
• Consideration – being the exchange of something of value for a promise;
• An intention by the parties to create a legally binding agreement; and
• Capacity – in that parties must have legal capacity to enter into a contract (i.e. a minor or someone not of sound mind will generally not be bound by a contract)

What problems will I have with a verbal contract?

Whilst verbal agreements are enforceable at law, a common problem that surrounds them and the enforceability of those contracts is proving the existence of the agreement and identifying the terms of the agreement.  In the absence of a written agreement, it is easier for a party to deny the existence of a verbal agreement and/or dispute the terms of the agreement and it generally will be one party’s word versus another party’s word, which can lead to a high level of uncertainty and doubt and thus lead to issues with enforceability of a contract.  Issues of credit become relevant and ultimately a court will need to make a determination about who is the more trustworthy witness.

Whilst “handshake deals” used to be the norm in business transactions, not just to limit the spread of Covid-19, but with a rise in contractual disputes, it is sensible for parties to, at the very least, confirm the agreement writing or enter into a written contract at the outset setting out the terms and conditions in detail to limit the prospects of a dispute.

Final takeaways

In summary, whilst a verbal agreement is enforceable provided the relevant formalities are met, it makes much more sense to properly document an agreement between parties.  When drafting more complex agreements, it is sensible to seek some legal advice or assistance in drafting the agreement to ensure the agreement covers all bases.

In the event that you are uncertain around the meaning of a term or the contract in general, it is important to seek legal advice in those circumstances. Please contact one of our lawyers in our property commercial and/or litigation teams to discuss the drafting and/or enforceability of contracts.

Call us on (07) 5591 5099 and a member of our team will be happy to help.

 

Author: Matt Kollrepp

Director: Ian Kennedy

Date: 28 July 2020