Is a Verbal Agreement an Enforceable Contract? ... YES!
Let me begin with a disclaimer: I do not advise people to enter verbal agreements. That said, verbal agreements happen all the time, and it is important to know that they are enforceable. As a practical matter, it is important to know that your spoken word matters. This notion relates back to the hope that "people are good" and "trustworthy." When you tell someone you promise you will do something in exchange for something else, you can be legally held to that promise.
Check out this article on CNN about Oral Contracts. For your convenience, I'll recap below.
Sometimes individuals are stuck with a verbal agreement because one of the parties is being difficult and refuses to put something in writing. I often see this happen with employer-employee relationships. Specifically, employers will make the employees (or past employees) promises to pay a severance or commission but then refuse to put it in writing. So, how can the employee prove an agreement exists if the agreement was made verbally?
"The short answer is: other writings and partial performance. With the advent of text messages and emails, people often send messages that form a bigger picture when put into context. After an in-person meeting, one party may text the other: 'So glad we reached an agreement this afternoon!' This type of messages supports the existence of an agreement, which is sometimes in dispute.
Partial performance exists when a person actually does something that would usually only be done in exchange for something else – usually payment. If a painter paints a home, it can be reasonably inferred that the homeowner promised to pay something in return. Without a written agreement, the painter may not be paid exactly what was promised, but at least he can recoup the fair value of his efforts."
Armed with this knowledge, if you are facing a situation in which you cannot create a formal agreement, you can still take steps to memorialize the verbal agreement in writing. Before you start sending text messages and emails in lieu of formal written agreements, consider the following reasons why written contracts are better:
- "Clarity. Verbal agreements are generally vague and ambiguous. Individuals often define terms differently. Most importantly, people frequently forget or misremember the details.
- Evidence. A contract is a person's best evidence of what both parties actually promised to do or not do. Even when all parties are acting in good faith, sometimes people remember wrong. Having the ability to refer to terms in writing can save all parties in time and resources by avoiding unnecessary arguments.
- Statute of limitations. If someone breaks a written promise to another, they have four years from the date of the broken promise to bring a lawsuit. In contrast, one only has two years to bring an action on a broken verbal agreement."
Finally, there is an important concept called the Statute of Frauds. This refers to certain statutes that require specific types of agreements be put in writing to be enforceable. Here are a few examples of contracts that are only enforceable in writing:
- An agreement for performance when the performance is to take place after one year.
- A lease exceeding one year.
- An agreement not to be performed within the lifetime of the person making the promise.
- A loan exceeding $100,000.00.
- The sale of goods for the price of $500 or more.
This list is certainly not exhaustive. As a general rule, the more important a transaction or commitment is, the more likely it should be put in writing. And, if you want to ensure that contract is enforceable, you should also contact us to speak to an attorney. But if all else fails and you are faced with a situation in which all you have is a verbal agreement, don't hesitate to contact us for that too.