While doing business, you may enter into agreements that do not include signing a document. For instance, you might enter an oral agreement with another party. Depending on the circumstances, oral agreements can be legally binding on parties. However, due to its lack of written evidence, it is often difficult to prove the terms and enforce oral agreements. This article will explain how you can take steps to enforce an oral agreement.
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Is Your Oral Agreement Legally Binding?
As a first step, you must show that you and the other party have created a legally binding oral agreement. Next, you need to prove the three essential elements of a contract.
- Offer and acceptance: one party must make an offer, which another party will then accept. Additionally, all essential terms in the contract must be clear. If any essential terms are missing or still open to negotiation, the agreement will not legally bind the parties. For instance, an essential term might be the price of a service or product as part of a contract for goods or services.
- Consideration: There must be something of value exchanged between the parties. One of the most common forms is exchanging money for goods or services.
- Intention to create legal relations: You must intend to be legally bound by the obligations set out in your oral contract. A party’s conduct can demonstrate this, such as if you start to perform the services you agreed on. If you are in a commercial setting, you are more likely to show that both intend to be legally bound.
How Can I Prove My Oral Agreement is Enforceable?
If you want to enforce the oral agreement, you must prove it existed between you and the other party. It would help if you started by considering whether your oral communications with the other party have satisfied the above elements. The other party may dispute the existence of the entire agreement or particular terms, such as the payment method.
Oral agreements are difficult to prove in court. You and the other party will have different views on the terms that form part of the oral agreement. Many disputes may hinge on whose version of events is the most believable.
Continue reading this article below the formWritten Evidence
Written documentation can be a reliable form of evidence proving your oral agreement’s existence. Examples of written evidence include:
- an email or letter was written by you to the other party after making the oral agreement which confirms the terms of the agreement;
- an email or letter from the other party (if they are a debtor) to you (if you are a creditor) confirming they owe you money and they will pay you ‘shortly’;
- text messages between you and the other party that discusses key terms of the agreement; and
- contemporaneous documents such as purchase orders, invoices, receipts, delivery dockets or bank statements showing payment that demonstrate an exchange of money between you or the other party.
As a measure of good practice, you should always try to document your discussions to ensure you have a form of written evidence.
Oral Evidence
You may also rely on oral evidence from other people. They can support your testimony or any written evidence that you find. If you had witnesses to you and the other party making an oral agreement, they could give evidence on the terms of the oral contract. That evidence is usually set out in an affidavit.
The other party’s lawyers can cross-examine anyone who affirms or swears an affidavit at trial in open court. The purpose of cross-examination is to check or discredit a witness’s:
- testimony;
- knowledge; or
- credibility.
A judge’s opinion can often change during cross-examination. Therefore, you and your witnesses must ensure your evidence can withstand scrutiny.
With the right evidence, you can successfully prove that your oral agreement is enforceable. However, before you go to court, you need to consider if you have enough evidence to prove that your oral agreement is enforceable.
Why You Should Avoid Oral Agreements
Many people still make oral agreements because they are:
- too busy to record the agreement in writing;
- too comfortable with similar oral agreements with a person or company in the past that worked out ‘fine’; or
- used to not having a written contract for any work, goods or services exchanged.
However, if a dispute arises, your options are far more limited than a written contract. You may have clear procedures to resolve disputes efficiently in a written contract. In addition, you will likely save time and money because you and the other party know what you have agreed upon in your contract.
Key Takeaways
An oral agreement will be legally binding as long as you can establish all the essential elements of a contract. However, you will find it difficult to prove the existence or enforce the oral agreement against the other party unless you have extensive written or oral evidence. You should capture any oral agreement in writing to minimise the risk of costly disputes.
If you have any questions about your oral agreement, our experienced regulatory and compliance 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 may be binding when it satisfies a contract’s three elements: offer and acceptance, consideration and an intention to create legal relations.
Generally, we recommend trying to enter written agreements as much as possible. Proving that an oral agreement can be problematic, involving rigorous fact-finding and a potentially lengthy dispute. With a written contract, terms that both parties agree on are set out, and there are straightforward methods of executing the document to prove that parties intend to be bound by the agreement.
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