Characteristics of a Verbal Contract
A verbal agreement is an informal contract that exists between parties without any written documentation. It can be completely verbal, or may contain elements of written communication such as email, texts, or even social media messages. Texas recognizes the existence of verbal contracts and generally will enforce them according to their terms. However, these types of contracts can be far more problematic than their written counterparts, since they are much more difficult to prove.
In Texas, a contract is an agreement between two or more parties that creates legally enforceable obligations . These obligations can run in either direction – that is, one party might be required to perform a certain act, while the other might be obligated to pay a fee or other compensation for that service. Verbal agreements are legally binding in Texas if they meet four basic elements:
As a general rule, the law does not require the mutual assent of parties to be express. In other words, a contract does not always require an express promise by one party to enter into an agreement, as long as the parties did in fact agree on the essential terms. For example, if two parties have had other similar dealings, their conduct might be sufficient to show their assent.
Enforceability of Spoken Contracts in Texas
A verbal agreement is legally enforceable in Texas unless the agreement falls under a specific list of exceptions. These exceptions are as follows.
Devises
The sale of land
Marriages
An agreement that cannot be performed within one year
An agreement made under the Statute of Frauds
The Statute of Frauds for Texas holds that certain agreements must be in writing for them to be enforceable by law. The following transactions are covered under this Statute:
An agreement to sell of convey goods or chattels for a value of over $500.
An agreement to sell of convey real property.
An agreement or act which is not to be performed within one year of the making of the agreement.
An agreement made in consideration of marriage.
A promise by the executor or administrator of an estate to answer for a debt or duty or damage of an estate.
This is why it is important to get all verbal or oral agreements in writing.
When Spoken Contracts Aren’t Enforceable
Exceptions to enforceability often arise when the law requires that a contract be in writing or that a contract change is made in writing. In Texas, there is an exception to the rule of the statue of frauds that states: A written agreement is not required under this chapter if the agreement concerns a sale for $500 or less, a lease for $1,000 or less, a sale or lease for $1,000 or more if the goods or lease is to be disapproved in a currency or an equivalent in cash at the time of the sale or lease. Tex. Bus. & Comm. Code Ann. §26.01.
There are also several contracts that the Statute of Frauds states must be in writing, including but not limited to the following: (a) A contract for the sale of real estate; (b) A lease for more than one (1) year; (c) A promise made by a creditor to pay the debt of a debtor; (d) A lease of personal property for a term longer than 1 year; (e) An agreement by the value of services rendered in the pipeline business; (f) A sale of goods for $500 or more. Tex. Bus. & Comm. Code Ann. §26.01.
Any agreement that violates a statute or public policy is also unenforceable, as well as any agreement which is based on fraudulent conduct or made by spontaneity.
How to Prove an Oral Agreement
While the existence of a verbal agreement can be established in various ways, none are as straightforward as a written document. When faced with proving the terms and conditions of a spoken contract, however, it is important to note some evidence that may be considered:
- The nature of the subject matter.
- The way in which the parties communicated during negotiations and made the agreement.
- How the parties performed after the contract was made.
- The amount of time that has passed since the contract was made.
- How complicated the subject matter is and the number of terms agreed to.
- The reason why there is no written contract.
As with many aspects of the law, the ability to prove a verbal agreement depends heavily on circumstances . The particular subject matter, the manner in which the parties communicated about the contract, how the two parties performed the provisions of the contract after it was formed, the time that has lapsed since the agreement, the complexity of the agreement’s terms, and the reasons why there was no written agreement can all be considered by the courts.
Witnesses might also be necessary. If there were people present when the contract was negotiated, that person can often serve as an excellent witness. This might include employees if the parties were business associates. Oral claims can also be made that the other party made remarks; this would serve as circumstantial evidence that there was a contract as stated.
Through the use of witnesses and the consideration of other circumstances, a verbal agreement might be deemed to be valid. Determining whether a verbal contract is valid can be difficult. As such, it is always best to contact an attorney when dealing with these types of matters.
Issues with Spoken Agreements and Conditions
Common issues with verbal agreements can be placed in several categories: mistaken memory, misunderstanding, vagueness, lack of clarity, failure to comply (even if they agree), and conditional promises.
Verbal agreements often include elements of mistaken memory. By this, I mean that one party remembers details differently from the other, thereby creating disputes that delay performance. Sometimes, the parties simply do not remember having reached a verbal agreement, much less what the terms were. Furthermore, you have to consider how many people were involved in the discussion that led to the alleged verbal agreement. With multiple participants, it is common for one person to remember the verbal agreement very differently from another. A good example of this common problem in the workplace may involve an employee who asks an employer about acquiring stock in the company. The employer agrees verbally, and then later the employer denies ever discussing any agreement being reached for the employee to receive shares. After talking to a supervisor, human resources and possibly legal counsel, the employer still denies the existence of an agreement. Now both sides are adamant that an agreement does or does not exist, and it is almost impossible to prove. Alternatively, there is a third party (i.e. witness) that heard the discussion about obtaining shares. That third-party witness can be critical evidence if the dispute is litigated.
Mistaken memory also applies when an agreement has been reached amongst a limited number of people. For example, let’s say some work colleagues talk about agreeing to move forward with a project under certain conditions. Because the agreement took place in a business context, the work colleagues believe an agreement had been reached. Later, the business changes, and one of the individuals no longer works for the company, but that individual is contacted again by the same employer with a request to renew the project. But, the business now wishes to change some of the prior terms in order to make the project more economically feasible. Because the first individual spoke to both persons who grant approval of the project in the past, the proposal is again taken back up with the original approval authorities. Is this a new verbal agreement? Were the original terms ever agreed to? Did one party have the ability to bind the business when the project was first discussed? Again, without written evidence, it will be difficult to prove whether a verbal agreement exists.
This example highlights the issue of misunderstanding, which is extremely common an integral to business agreements. This is especially true in the context of employment, because employers typically reserve the right to modify any terms and conditions of employment at any time. For example, an individual comes to work for an employer and works with an individual for 6 months. During that period, the employee says, "When will I receive my performance review?" The supervisor responds with, "Probably in 6 months." The employee subsequently forgets that the employer has a policy that includes performance reviews annually. Six months after the conversation above, the employee complains to other employees that their review is late and is adamant the review was to occur in 6 months. The employee and supervisor have a verbal disagreement about when performance reviews are to occur. Does the employee have grounds to sue the supervisor, or the employer, as a result of an alleged oral agreement? What did the employee agree to, and what did the supervisor mean? Unfortanately, these situations occur far too frequently.
In light of these common problems, the use of verbal agreements are not practical. Consider that all of the discussion leading up to a verbal agreement is essentially fact finding. If every business transaction required the kind of discussion and analysis that occurred before entering into an agreement, then parties would need to have a written and signed agreement before any business transactions could be made. It is not reasonable for any party in an agreement to complete and sign a formal contract before every transaction. Instead of verbal agreements, conduct should stand in as a substitute for performance.
How to Make Oral Contracts More Secure
Especially in the age of technology, there are a couple ways you can try to make verbal agreements more secure. One way is to follow up with an email or text that summarizes the agreement. For example: "Hey, just wanted to make sure we’re on the same page still. I will do [x] and you will provide me with [y], and we will meet on [date]. Sound good?"
It’s key to be timely with this – if you wait a couple of days, it could signal to the other party that you have had a change of heart.
You should take care during your follow-up to take an even-handed tone. A passive aggressive approach in any written agreement (even if only an email) will undercut the effect of the follow-up and may tank the agreement.
If you want to take it a step further, you can record the conversation (with the other party’s permission).
The law is a little murky on the enforceability of recorded agreements , as it may depend on state law. It’s generally recognized that the recording must be done with the consent of both parties in order for it to be considered valid – in other words, a covert recording will likely not be enough to prove up the contract, and in some cases, could even lead to a lawsuit for invasion of privacy.
However, a sound recording of the agree could be a valuable tool when negotiating with the other party. The person being recorded may feel more pressure to hold up their end of the bargin if they know that there is a record of what they said they would do. Further, if/when a lawsuit ever happens, you may be able to produce the recording as evidence.
Depending on your relationship with the other party, you may want to offer your own recording of your conversation, so they feel comfortable doing the same.