As a business owner, if you and another party have made a legally binding oral agreement, that agreement will be enforceable. However, you may find it difficult to enforce your oral agreement in practice. This difficulty usually stems from a lack of written evidence to show what you and the other party have agreed to in a contract. This article explains how you can enforce an oral agreement.
Do You Have a Legally Binding Oral Agreement?
You must show that you and the other party have created a legally binding oral agreement. You need to prove three essential elements of a contract. These are:
- offer and acceptance: All essential terms in the contract must be clear. If any essential terms are missing or still open to negotiation, the agreement will not be legally binding on the parties. An example of an essential term would 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. Consideration can be the exchange of money; and
- intention to create legal relations: Both of you must intend to be legally bound by the obligations set out in your oral contract. If you are in a commercial setting, you are more likely to show that both of you 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 that it existed between you and the other party. The other party may dispute the existence of the entire agreement or particular terms, such as the method of payment.
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.
You will have to provide written or oral evidence if you wish to prove that your oral agreement is enforceable.
Written documentation can be a reliable form of evidence that proves the existence of your oral agreement. Examples of written evidence include:
- an email or letter 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.
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 can 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 will need to ensure your evidence can stand up to scrutiny.
With the right evidence, you can successfully prove that your oral agreement is enforceable. Before you go to court, however, you need to know 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 compared with a written contract. In a written contract, you may have clear procedures to resolve disputes efficiently. You will save time and money because you and the other party know what you have agreed upon in your contract.
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.
Where possible, capture any oral agreement in writing so you can minimise the risk of costly disputes. If you have any questions about your oral agreement, get in touch with LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.
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