Although contracts do not always need to be in writing, ideally, you should put your oral agreements in writing. Despite how commonplace verbal contracts are, they often result in disputes due to a lack of clarity and certainty regarding the agreement terms. This article will take you through what oral agreements are and why lawyers recommend putting your oral agreements into writing.
What is an Oral Agreement?
An oral agreement refers to a contract made by verbal agreement with the intention of being enforceable. However, most contracts are in writing, where the parties can record and sign the terms as evidence of agreed-upon terms.
Legally, certain contracts must be in writing. This includes:
- assignments of copyright;
- cheques and payment orders;
- credit contracts and consumer leases;
- domestic building contracts worth more than a certain amount (determined by the state you live in);
- contracts for the sale of second-hand motor vehicles by dealers;
- contracts for the sale of land;
- marine insurance contracts; and
- assignments and mortgages of life insurance policies.
Are Oral Agreements Legally Binding?
Oral agreements can be legally binding if they contain all elements of a binding contract. For a contract to be valid, it must contain the following elements:
| Offer and Acceptance | There must be an intention between the parties to be bound by the agreement. |
| Consideration | Value must pass between the parties. This will often be money in exchange for goods and services. |
| Intention | Parties must intend to be bound by the agreement. |
| Capacity | Parties must have legal capacity. For example, they must be of legal age, sound mind etc. |
| Certainty | The terms of the agreement should be sufficiently clear. |
Issues with oral agreements arise due to difficulty demonstrating the elements of a valid contract. In particular, demonstrating an offer, acceptance, intention, and certainty may be difficult. This might cause disputes between parties, leading to court proceedings and the dissolution of business relationships. Having a written contract can limit misunderstandings, which in turn will reduce the incidence of contractual disputes.
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Benefits of Written Contracts
There are many benefits to having a contract in writing instead of relying on an oral agreement. Some of these are outlined below:
1. Clarity
Written contracts provide clarity that oral agreements do not offer. For example, a verbal agreement might be misinterpreted or lost in translation or over time. Putting agreements in writing can ensure all parties know what they agree to. Agreements in writing also allow parties to review the contract before signing, enabling them to revise the agreement as needed to ensure they understand their obligations.
2. Ease of Enforceability
Written contracts are much easier to enforce than verbal contracts. With oral agreements, it can be hard to prove the agreement existed in the first place and demonstrate what the agreed terms were. In addition, parties might have different recollections of what they agreed to. Any disputes will ultimately come down to the words of one party against the other. If the matter goes to court, you will need to bring forth witnesses and documents to decipher the terms of the contract. The court might also consider what standard procedure is in the industry. However, by having all terms in writing, you will likely avoid these issues.
3. Dispute Resolution
When disputes between parties to a contract occur, a written agreement will ensure the dispute resolution process goes as smoothly as possible. If the parties misunderstand the terms of the agreement, they can refer to the written agreement to determine their intention. Further, a written agreement might include provisions for dispute resolution options, such as an agreed-up third-party mediator or options to terminate the contract. Finally, where disputes progress, and the matter goes to court, the court will refer to the written agreement to resolve the dispute in line with the parties’ agreement.
Key Takeaways
Verbal agreements are enforceable in many instances. However, there are various benefits to having a contract in writing instead of relying on an oral agreement. This is because oral agreements provide the following:
- clarity;
- ease of enforceability; and
- dispute resolution options.
If you need assistance preparing a written contract, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
An oral agreement refers to a contract made by verbal agreement to be enforceable. However, most contracts occur in writing, where the parties can record and sign the terms they agree upon as evidence.
There are multiple benefits to having a contract in writing instead of relying on an oral agreement. Firstly, written agreements provide clarity that oral contracts do not offer. Further, the details outlined in oral agreements make enforcing written agreements easier and resolving related disputes easier.
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