Contrary to popular belief, verbal agreements can be legally binding contracts. Under basic contract law, a contract requires an offer, acceptance, and consideration (something of value exchanged between the parties). These elements can exist in oral form just as easily as in writing. However, enforcing a verbal agreement presents significant practical challenges.
The primary challenge with verbal agreements is proving their existence and terms. In a dispute, it becomes one party's word against the other's. Without written documentation, there's no clear record of what was agreed to, when the agreement was made, or what the specific terms are. This 'he said, she said' situation makes enforcement extremely difficult.
The Statute of Frauds, adopted in some form by every state, requires certain types of contracts to be in writing to be enforceable. Contracts that typically must be in writing include agreements that cannot be performed within one year, contracts for the sale of land or real property, contracts for the sale of goods over $500 (under the UCC), agreements to pay another person's debt, and marriage-related contracts.
Even for contracts not covered by the Statute of Frauds, having a written agreement is always advisable. Written contracts provide clear evidence of the terms, reduce the risk of misunderstandings, serve as a reference for both parties throughout the relationship, and are much easier to enforce in court if necessary.
If you find yourself in a situation where a verbal agreement exists, take steps to document it as soon as possible. Send an email or letter to the other party summarizing the agreed-upon terms, keep any text messages, voicemails, or other communications that reference the agreement, save receipts, invoices, or other records of performance, and note any witnesses who were present when the agreement was made.
Courts can sometimes enforce verbal agreements through the doctrine of partial performance. If one party has already started performing under the verbal agreement and the other party has accepted that performance, a court may enforce the agreement to prevent injustice. However, relying on partial performance is risky and uncertain—much less reliable than having a written contract.
The concept of promissory estoppel can also help enforce verbal promises in some cases. If one party reasonably relied on the other's verbal promise and suffered a loss as a result, a court may enforce the promise even without a formal contract. However, proving promissory estoppel requires demonstrating detrimental reliance, which can be challenging.
The bottom line: while verbal agreements can be legally binding, they are risky and difficult to enforce. Always put your agreements in writing, no matter how small the deal or how much you trust the other party. The few minutes it takes to draft a simple written agreement can save months of expensive litigation and preserve important business relationships.
