Is a Verbal Contract Legal? What to Know
What’s a verbal contract and is it considered legal? These are important questions to ask and fully understand the answers to in order to avoid any contract disputes.
Read on to learn the details.
Introduction
Remember the old days when a handshake and firmly-spoken words were all it took for a contract or agreement to be put in place? Believe it or not, even with all the laws in place and new technology that makes it easy to have a contract signing on different ends of the world at the same time – verbal agreements still exist.
But just how secure are they? Are they legal? Will they stand up in court? Here’s what you need to know about verbal contracts.
What is a Verbal Contract?
A verbal (or oral) contract is spoken between parties. These may be oral terms that are spoken and agreed upon. Or, it may include jotting down terms on a piece of paper. There is no formal written contract stating each term of the agreement and there is no signature or notary.
The Essential Elements of Every Contract
There are certain essential elements that every contract must have. While many will vary in the exact definition of the elements, here are the elements that will enhance the validity of a contract and make it legally binding.
A Clearly Defined Offer and Acceptance
The terms of the transaction should be able to be described with a clear definition. Just as any written contract, there would be a description of what one party is offering and what the other party agrees to accept.
A Lawful Purpose
The purpose of the contract itself must be legal. Making a verbal agreement to sell or purchase stolen property would not be an enforceable agreement. In fact, the purpose would be considered unlawful and the contract would be null and void.
Lawful Consideration
The thing of value that is to be given for a product or service, for instance, is called the consideration. For a contract to be legit, the consideration has been legal – as well as the item or service being purchased or exchanged. Consideration can be anything of value agreed upon, such as money, bartered service, or even something of physical value.
Certainty of Terms
Just because the verbal contract is spoken does not mean the terms of the agreement can be vague. Both parties need to fully understand what they are agreeing to so therefore the terms need to be certain. This includes who the contract is between, what each party is responsible for, the price for the transaction, and all other details surrounding the contract.
Consent of all Parties
All parties need to verbally consent to the agreement. They need to be of sound mind and be free to consent without any type of duress, coercion, or misrepresentation of facts. And neither party should be under the influence.
Legal Capacity to Agree
If the parties are agreeing verbally, they need to have the legal capacity to do so. Think, for instance, as if this contract were written. Would the individuals involved be able to legally sign in the presence of a notary? All parties need to be over the age of 18, be of sound mind, and be legally authorized to agree (if representing a company, for example).
Can You Enforce a Verbal Contract? The Difference Between Legal and Enforceable
There are some instances when verbal contracts are legal. Two people, for instance, make an agreement to barter their services – or a sale agreement between two executives. You don’t necessarily have to have agreements like this in writing as they are legal. The question, though, becomes is the contract enforceable?
There are certain characteristics a verbal contract must have to be considered enforceable by most courts. The terms listed above – the essential elements of a contract – need to be met for this verbal agreement to be enforceable. While making the agreement was legal, if it does not meet all the essential elements, it could be deemed unenforceable.
Statute of Frauds – and Exceptions
According to California Law [Cal. Civ. Code. 1624], there are certain types of contracts that are considered “invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent.” This means that the documents below cannot be legally enforced if they are verbal contracts.
(1) An agreement that by its terms is not to be performed within a year from the making thereof.
(2) A special promise to answer for the debt, default, or miscarriage of another, except in the cases provided for in Section 2794.
(3) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; such an agreement, if made by an agent of the party sought to be charged, is invalid, unless the authority of the agent is in writing, subscribed by the party sought to be charged.
(4) An agreement authorizing or employing an agent, broker, or any other person to purchase or sell real estate, or to lease real estate for a longer period than one year, or to procure, introduce, or find a purchaser or seller of real estate or a lessee or lessor of real estate where the lease is for a longer period than one year, for compensation or a commission.
(5) An agreement that by its terms is not to be performed during the lifetime of the promisor.
(6) An agreement by a purchaser of real property to pay an indebtedness secured by a mortgage or deed of trust upon the property purchased unless the assumption of the indebtedness by the purchaser is specifically provided for in the conveyance of the property.
(7) A contract, promise, undertaking, or commitment to loan money or to grant or extend credit, in an amount greater than one hundred thousand dollars ($100,000), not primarily for personal, family, or household purposes, made by a person engaged in the business of lending or arranging for the lending of money or extending credit.
Hire an Attorney
Your best line of defense when creating an agreement or determining the validity of it is to speak to an attorney. This investment in legal expertise can save you from entering an agreement that is unenforceable, resulting in lost time, money, and resources.
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