ARE VERBAL AGREEMENTS BINDING LEGALLY?

A verbal agreement is made when two or more parties come to an agreement without any written documentation, thus: they create a verbal agreement (known formally as an oral contract).

CHAMAN LAW FIRM

5/24/2022 3 min read

ARE VERBAL AGREEMENT BINDING LEGALLY?

People generally expect that once you agree to do something, you to do it—but are you legally bound by such?

A verbal agreement is made when two or more parties come to an agreement without any written documentation, they create a verbal agreement (known formally as an oral contract). The authority of these verbal agreements, however, can be a bit of a gray area for those who aren’t familiar with contract law.

However, most verbal contracts are legally binding but there are some exceptions, depending on the construction of the agreement and the purpose of the contract. In many cases, it’s safe to create a written agreement to avoid disputes.

For instance, employers, employees, and independent contractors may find it invaluable to document the terms of their agreements in an Employment Contract or Service Agreement. Although an oral agreement may be legally enforceable, it can be hard to prove in court.

WHEN ARE VERBAL AGREEMENTS NOT BINDING?

For a verbal agreement to be binding, it must possess the elements of a valid contract. If an oral contract misses one or more elements of a valid contract, a court will likely rule the agreement to be void and unenforceable.

WHAT ARE THE ELEMENTS OF A VALID CONTRACT?

The six potential elements of a valid contract are:

  1. Offer and acceptance

  2. Lawful consideration

  3. Intention to create legal relations

  4. Certainty and completeness of terms

  5. Free consent of the parties

  6. Capacity

Going by the above, for a verbal agreement to be binding, the elements of a valid contract need to be in place. To illustrate how the elements of a contract create binding terms in a verbal agreement, the following example will be examined:

Tade borrowing #20,000 from his friend to replace a punctured tyre with the agreement that he pays back.

Offer and acceptance

In a valid contract, one party makes an offer and the other party accepts. This is commonly known as a “consensus ad idem” i.e meeting of the mind, because both parties agree to these terms. In our example, the friend offers to loan on the condition that Tade pays it back within a reasonable time frame. Tade accepts his offer and promises to pay his friend back in full after he’s purchased his new tyre.

Lawful consideration

The parties must furnish something of value (monetary or otherwise), known as consideration. Plus, the exchanged item must be legal. In our example, the #20,000 and the promise to return it are both examples of lawful consideration.

Intention to create legal relations

The intention of the parties to the contract must be lawful. In our example, Tade’s reason for borrowing money from his friend is to replace a flat tyre on his car. As such, the contract between them is lawful. However, if the intention of the friend was to substitute his repayment of money with illegal drugs, the intention becomes unlawful and the contract is void.

Certainty and completeness of terms

The terms of the contract cannot be vague, incomplete, or misrepresented. In other words, there should be agreement on who the parties to the contract are, the obligations of each party, the price to be paid, and what the subject matter of the contract is. The terms between Tade and his friend are very clear; the friend loans the man #20, 000 for the purchase of a new tyre (and nothing else) on the condition that he pay her back the #20, 000 at a specific time (such as when he gets his next salary).

Free consent of the parties

The parties, both being of sound mind, should consent to the terms of the agreement freely, meaning without undue influence, coercion, duress, or misrepresentation of facts. Tade and his friend both consent to the terms of the contract without pressuring or duress each other and with the intention of fulfilling their obligations.

Capacity

The parties must have the capacity to enter the contract, meaning they are above the age of majority and are of sound mind. In our example, Tade and his friend are both over 18 years old, are not under the influence of mind-altering substances, and do not have cognitive impairments such as dementia.

Though clients will often presume that verbal agreements are not binding. As a general rule, the law considers that verbal agreements are legally binding. In order to avoid disputes involving verbal agreements, it is advisable that evidence to demonstrate that a binding agreement has been reached be presented.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com

WRITTEN BY CHAMAN LAW FIRM TEAM

EMAIL: chamanlawfirm@gmail.com

TEL: 08065553671, 08024230080