What Constitutes a Verbal Contract
Verbal contracts are agreements formed by verbal promises given between two or more parties. A verbal contract does not have to be put into writing in order to be regarded as a legally binding contract. Fundamental elements for a contract are the "meeting of the minds" between parties to enter into an agreement without necessarily putting it into writing. Such contracts operate generally in the same way a written contract does , and the law governing verbal contracts is the same law that governs written contracts.
Are Oral Agreements Enforceable Under California Law?
As stated above, verbal contracts are enforceable in California in certain situations. With regard to landlord and tenant leases, the general rule is that leases for a term longer than one year are required to be in writing if they are to be enforceable. (Cal. Civil Code § 1624.) However, as noted above, an oral agreement can be enforceable under the doctrine of part performance if performance pursuant to the contract can be shown and that the actions taken were so significantly related to the contract that it would be inequitable to allow the other party to disavow it. (See Woodbury v. DeGroot (1984, 2d Dist) 162 CA3d 896, 209 Cal Rptr 897). Whether or not any actual part performance was made under the contract will depend on the circumstances of each situation.
Notwithstanding the above, certain California statutes effectively override the Statute of Frauds in a number of situations. For example, a written memorandum, even if it is incomplete and imperfect, of a conveyance of real property signed only by the vendor or lessor will enforce a sale or lease of land if it can be shown that the purchaser has in good faith paid a portion of the price and has either taken possession of the property or has made improvements. (Cal. Civil Code § 1624(a)(3).)
Similarly, the equity of partial performance can be applied to oral agreements to transfer real property between family members where full payment was made and there was a transfer of title from parent to child or grandparent to grandchild. (See Cal. Civil Code § 1624(a)(2).) In these specific instances, the statute of frauds requirements are satisfied upon full performance of the oral agreement.
What Are the Elements of a Verbal Agreement?
Under Californian law, an oral or verbal contract can be legally binding and enforceable. It is not legally required for every contractual agreement to be in writing, particularly if the contract is one that can be completed within one year. However, most contracts require four elements in order to be valid, whether they are written or not:
Offer
The offer is the first step in the creation of a contract, regardless of the type of agreement. The proposal must be made with a language that implies it is open to acceptance without the intention of ending negotiations. If words or actions suggest that further discussion is needed, the proposal cannot be considered as an offer. The words used in an offer do not have to be exact. The offer should also be sufficiently clear as to what the terms of the agreement entail, or else the offer cannot be considered a valid offer.
Acceptance
The agreement cannot exist without agreement from both parties. When one party proposes terms for an agreement, the other must then agree to them in order for a contract to exist. This is known as acceptance. Like the offer, the acceptance must be definite in its terms and make no attempt to change the original proposal/offer.
Consideration
For a contract to exist, there must be consideration from both parties. Formally, consideration is simply the exchange of something of value between the two parties. In practice, however, consideration is the negotiation process in which each party agrees how they will exchange their values (what they will do for the other person). In simpler terms, consideration can be described as a "bargain for exchange."
Mutual Consent
In order for a verbal contract to exist, the parties entering into the agreement must do so consciously, without coercion or undue influence from the other party.
Eyebrows Raised: In What Situations Can Verbal Contracts Lose Their Enforceability?
While the general rule is that verbal contracts must be held as enforceable in California, there are certain exceptions where the law requires certain contracts to be in writing to be enforceable:
- the agreement involves an interest in "real property" (as described above);
- the agreement involves the sale of goods valued at $500 or more;
- the agreement is not capable of performance within one year of the date of its making; or
- the agreement consists of terms which would require another party to pay a debt of $125,000 or more.
If any of these categories apply, you will likely need a written contract for it to be enforceable in court.
How to Prove a Verbal Contract In A Court Hearing
To prevail in a case involving a verbal contract in California, an individual must first prove that a valid contract existed between the parties to the dispute. Generally speaking, the party who claims that such a contract exists must be able to demonstrate by a preponderance of evidence that an offer for the contract was made, that the offer was accepted and that each party had a full understanding of the terms and conditions of this agreement .
In many cases, it’s difficult to provide evidence that supports the existence of verbal contracts — especially those that involve payments for services or goods that will be provided on a future date. It is still possible, however, to show that contract exists through the use of witness testimony and other forms of evidence.
When soliciting willing witnesses for use in your case, it is important to make sure they are both willing and able to provide truthful testimony. The use of false testimony can result in significant legal consequences for both the witness and the party being represented by the witness.
Example: Verbal Contract Dispute in California
In St. Paul Mercury Ins. Co. v. Lindsey (2002), the seller of a habitable home sued the insurer for compensation, arguing that the buyers had verbally agreed to purchase the house and had indicated on a realtor-approved form that they intended to go ahead with the purchase. The seller ultimately never conveyed the property, as he never received payment from the buyer and after the sale fell through, the buyer filed for bankruptcy.
The buyer’s actions did not constitute a legally binding agreement, however, according to the California Court of Appeal, which stated that a real estate purchase agreement is considered an enforceable contract in the state only "if in writing and signed by the party to be charged." In the case of a verbal or partially written contract, the parties’ subjective belief can be considered as well, but in this instance, the court determined that the parties never displayed any intention to enter into an enforceable agreement, dismissing the plaintiff’s claims. As St. Paul is a lower California court case, it is not binding on other California courts.
What Are Some Tips for Managing Verbal Contracts
Despite court decisions outlining the essential elements for valid verbal contracts, and a California law specifying certain details that must be included in written contracts, it is not uncommon for verbal agreements to be legally binding. In California, most contracts can be modified or rescinded by agreement of the parties, and in practice there are few limits on the enforceability of verbal agreements. The recommended best practice is to have written contracts , and if for some reason it is impractical to commit an agreement to writing, careful documentation is essential. Some key tips include: Verbal contracts in California are not unusual, and they are not always unenforceable. However, many disputes are better resolved with strong written contracts, and when there is any question regarding what the terms of an agreement are, or when an agreement should be formalized in writing, it is best to speak with an attorney experienced in contract formation.
