Verbal agreements can be made impulsively with details not properly ironed out. This can become a problem when verbal agreements become enforceable, which then have the same effect as written contracts.
To be clear, not all verbal agreements are legally binding. The same is true with written agreements.
So what makes an agreement, whether verbal or written, a legally enforceable contract?
There are a few criteria which makes an agreement (or contract) enforceable. These are:
- Offer and acceptance
- All of the terms must be agreed upon
- The parties must intend to be legally bound
- Consideration, that is, something of value must be exchanged in the transaction
Offer and acceptance Offer and acceptance means that one of the party is offering and another party is accepting. The offer might be to an offer sell or buy, offer employment, offer to lease etc.
By saying that all of the terms must be agreed upon, it means that ALL the important terms have been agreed upon by both parties. If there are still some portion under negotiation, even if most of the terms were agreed on, there will be no legally binding agreement.
When parties enter into an agreement, they must have full intention to be legally bound, that is to create legal relations that holds each party accountable to every promise they make. Although intentions can easily be masked, a court will look at the surrounding circumstances of the transaction.
Of course, an agreement or contract is centred on the premise that a consideration or something of value is exchanged during the transaction. The consideration may come in form of money, whether cash of transfer of funds, goods or services.
These four criteria should be satisfied in order for a contract to be legally binding.
However, for verbal agreements, even if it looks like all criteria were satisfied, they are really hard to prove, and doing so is time consuming and challenging. Proving the terms of the agreement alone is difficult enough especially without a written document. It can become a battle of one’s word against the other.
That is why it’s important that all agreements should be done in writing. These are easier to prove and are much more admissible in court.
If there are any contractual issues you might be considering, please contact our business advisors today for advice and referral to a legal specialist from one of our preferred suppliers. Call us on (07) 5413 9300.