Are Verbal Agreements Legally Enforceable?

Content

• What is a verbal agreement?
• Are verbal agreements legally binding?
• What are the advantages of a verbal contract?
• What are the disadvantages of a verbal agreement?
• When are verbal contracts invalid?
• Streamlining Written Agreements
• Contract Templates
• Contract Negotiation
• Automated Workflows
• Contract Execution
• Timely Reminders
• Dock 365 Contract Management Software

In our daily lives, we enter into a variety of agreements. Only some contracts, though, are written down. We typically favor verbal or oral agreements when there is no formal arrangement or if we require immediate gratification. What happens, then, if someone breaks their end of the bargain?

Are the terms enforceable by law? Can parties approach the court for a breach? That’s where the legal validity of verbal contracts comes into question. Here is a thorough guide to oral agreements, including their enforceability, benefits, drawbacks, and the best applications to ease your worries.

What is a verbal agreement?

A verbal contract is an agreement between two or more parties that is spoken and not written down. Parties can make oral agreements in person or over the phone, but there’s no official documentation of the terms and conditions.

They’re the norm for simple and low-risk situations. For example, borrowing money from a friend and agreeing to repay it with interest constitutes a verbal agreement between the lender and borrower. Both parties consent to the terms and stipulations. 

What happens if the borrower fails to pay it back? Does the lender have the legal right to go to court? So, let’s find out what makes oral contracts enforceable. 

Are verbal agreements legally binding?

Generally, verbal agreements are valid and legally enforceable. Every state in the US has a statute that restricts the range of situations in which oral agreements are deemed lawful. Their validity depends on the jurisdiction and the contract type.

For instance, under the California Civil Code, real estate contracts must be in writing to be valid. Whereas, all over the US, they must include a few crucial components to be valid legally, just like written agreements. 

Offer and acceptance: Verbal agreements require a clear offer from one party and an acceptance of that offer by the other party. Both parties must agree to the terms of the contracts.

Consideration: The parties must exchange something of value. It can be money, goods, services, or anything else of value.

Intention: Both parties must have the intention to enter into a legally binding agreement. It means the contract cannot be a casual conversation or a joke.

Capacity: Both parties must have the legal capacity to agree. It means they must be of sound mind and not under duress or coercion.

What are the advantages of a verbal contract?

Oral agreements are ideal for risk-free and informal settings. While written contracts are generally considered more enforceable in a court of law, verbal agreements can still hold legal weight under certain circumstances. It is the best option for simple scenarios requiring quick results. 

• Flexibility in agreement terms

One of the key advantages of a verbal contract is its flexibility and speed of execution. Unlike written contracts that may require drafting, review, and signatures, a verbal agreement can be made quickly and informally. It can be convenient when time is of the essence or when parties must act swiftly.

• Cost-effective

Creating a written contract involves legal fees, drafting, and administrative expenses. In contrast, verbal agreements are typically free of charge as they do not require any formal documentation. It makes them a cost-effective option for parties looking to establish a basic agreement without incurring additional expenses.

• Building trust 

Verbal contracts foster a sense of trust and collaboration between parties. Individuals can build stronger relationships based on mutual understanding and communication by engaging in direct dialogue and verbal agreements. It can be valuable in industries where personal relationships drive business transactions.

What are the disadvantages of a verbal agreement?

Clear documentation is often absent from verbal agreements. It can be tiresome to prove agreed terms without a written contract outlining them. It can give rise to misunderstandings and disputes regarding the promises made by each side.

• Potential misunderstandings or disputes

Verbal agreements are prone to misunderstandings, as parties may have different recollections of the initial discussion. Because there is no written record to turn to, there is no mechanism to address conflicts resulting from these misconceptions. It can not only strain relationships but also lead to costly legal battles.

• Difficulty in enforcing terms

When there is a breach of verbal agreement, enforcing the terms can be a daunting task. They cannot prove the existence of the agreement and the agreed-upon terms. It can make it difficult to hold the other party accountable and seek remedies for any damages due to the breach.

• Limited legal remedy

When there’s no written contract, it can be challenging to pursue legal action to enforce the terms of the agreement or seek compensation for any losses incurred. It can leave you vulnerable and without proper protection during disputes, breaches, and amendments.

When are verbal contracts invalid?

Aside from the misunderstandings and disputes that verbal agreements can cause, contract law does not allow them in all situations. For example, real estate contracts, marital and divorce agreements, amendments, debt repayment contracts, and so on must all be in writing to be legally binding. Written agreements are necessary even for high-value contracts extending beyond a year. 

Streamlining Written Agreements

For quick outcomes, businesses and individuals typically choose oral agreements. But what if written ones can be just as simple and speedy for the parties to draft and carry out as oral contracts? Here’s all that goes into drafting and executing written agreements and how businesses can streamline them.

Contract Templates

Creating written agreements from scratch each time can be time-consuming for any business. So, parties can use contract templates instead of having legal counsel draft terms and conditions for individual contracts. Users can customize these pre-written blueprints for a specific use case or contract type. 

They can fill in the necessary fields, modify specific clauses to suit the purpose or parties, and then deploy the contract for quick execution. The legal department can create these templates to ensure the content is consistent and competent across the organization. For instance, companies can use an NDA template to draft contracts for multiple parties in no time.

Contract Negotiation

Negotiating the terms and conditions before finalizing them is vital to written agreements. As the content and purpose are complex, parties may go through them multiple times before agreeing on anything. This back-and-forth can be time-consuming without an efficient tool or process.

Fortunately, there are contract redlining solutions available today to accelerate the negotiation. They allow multiple parties to review, edit, and comment on written documents at the same time. The software keeps track of the changes and establishes version control. Thus, everyone stays on the same page throughout the negotiation process.

Automated Workflows

Written agreements require much more deliberation than oral contracts. Before signing, all parties involved must review and approve them. It can be laborious and slow if businesses don’t proactively approach the process. One way to accelerate reviews and approval is by routing contracts through automated workflows. 

Businesses can use the contract management workflow templates to manage internal contract review and approval processes. It enables the written agreement to reach the appropriate party without human intervention. As a result, the tasks are efficient, consistent, and on time, no matter how many parties or documents are involved.

Contract Execution

Unlike oral contracts, written agreements require signatures from all contract signatories to ensure legal enforceability. Wet signatures and scanning documents can complicate the execution process. It may cause unnecessary delays or confusion in the contract lifecycle.

Electronic and digital signatures are quick and easy solutions to execute contractual agreements. They allow parties to sign contracts from anywhere, at any time, with complete security. Electronic signature solutions like DocuSign, Adobe Sign, and Sertifi offer automated workflows and reminders to route the contract to relevant signatories. 

Timely Reminders

Written agreements have many deadlines and milestones throughout their lifecycle. There’s commencement, payment, renewal, termination, and so on. Parties must keep track of them to guarantee results and avoid breach of contract. Manually recording and monitoring them can lead to missed deadlines. 

Online contract management solutions enable parties to set automated notifications for relevant deadlines and dates. Thus, concerned stakeholders will receive timely reminders during renewal, payment, or termination. 

Dock 365 Contract Management Software

Verbal contracts rely on spoken words to establish terms and conditions, making them a straightforward way to communicate agreements. It can be beneficial when dealing with simple transactions or agreements between parties who have a strong level of trust and understanding.

However, writing down the terms and conditions is the most effective strategy for establishing long-term relationships in high-value corporate settings. Businesses can leverage all-in-one contract management software like Dock 365 to fast-track written agreements. Built on existing Microsoft 365, the automated solution allows users to draft, negotiate, review, approve, and execute contracts from a single platform. 

From pre-written templates and clauses to automated workflows, Dock 365 ensures the quick and efficient production of contractual agreements. Our platform allows seamless integration with electronic signature solutions (DocuSign, Adobe Sign, and Sertifi), ERP platforms (Business Central & Oracle NetSuite), and CRM systems (Salesforce & Dynamics CRM) to facilitate hassle-free contract management.