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If you run a small business, you may have several informal service arrangements or verbal agreements that you never put in writing. Generally, our recommendation is to get these agreements in writing. However, it is important to understand your rights and obligations where the arrangement is more informal and unwritten. This article will discuss how to enforce a verbal agreement.
Is There a Verbal Agreement?
Verbal agreements are generally enforceable if they are legally binding. A contract is a legally binding agreement. To be enforceable in court:
- one party must offer terms, and the other must accept the terms (agreement);
- the parties must exchange something of value, such as money (consideration); and
- the parties must intend to be legally bound by the terms of the agreement (intention).
A contract does not necessarily need to be in writing for it to be binding. Verbal contracts can also be binding and enforceable.
What are My Enforcement Options?
Verbal agreements can be enforced similarly to formal written contracts if the other party breaches a term of the agreement. For example, suppose they fail to pay an agreed sum or deliver services as agreed. If so, you can:
- contact the other party to the agreement and ask them to honour your verbal agreement;
- contact a dispute resolution service such as Fair Trading or the Small Business Commissioner; or
- consider legal advice and court or tribunal proceedings.
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Contacting the Other Party
The first step to enforce any agreement will be to contact the other party. In your first correspondence, it may be helpful to set out the agreement formation date and its key terms. The key terms may include the following:
- when the verbal agreement was entered;
- what goods or services were promised;
- how the agreement was discussed (by phone, text or email);
- cost of goods or services;
- length of the agreement or timelines; and
- any other promises concerning quality or quantity.
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An Example
On 14 March 2022, I spoke to Fergus at Ferguson’s Floral Arrangements. Fergus said he could provide my business with 25 floral arrangements per week for the next 6 months. I said I would pay Fergus $1,000 monthly, and he would deliver the floral arrangements on Friday each week. When Fergus and I spoke on the telephone, Fergus told me that the flowers would always be fresh and watered.
Once you have provided information on what was agreed upon, you need to clarify what promise the other side has not delivered on and what your ideal outcome is. Let us continue with the above example.
The first flower delivery was late and arrived the following Monday, 28 March 2022, and the flowers were old and withered. I want a refund for the value of the first order.
If the other party disputes your verbal agreement or refuses to respond to your requests, you may consider contacting a dispute resolution service or getting legal advice.
Legal Advice and Litigation
If you cannot resolve the dispute or negotiate an outcome you are happy with, you may consider legal advice and getting a lawyer involved. You will need to provide the key terms of the verbal agreement and the evidence to your lawyer, who will advise on whether you have a claim against the other party and whether it is likely to be successful. They may not recommend pursuing the dispute further if they have concerns about your evidence.
However, in most cases, their first step will be to issue a letter of demand. This letter will set out the terms of the verbal agreement and put the other side on notice of your position and ideal outcome.
If the letter of demand is unsuccessful, your lawyer may recommend initiating legal proceedings in a court or at a tribunal depending on the nature of the dispute. Before advising on this issue, your lawyer must consider your evidence in detail. It is important to note that even with good evidence and a solid position, litigation is uncertain, and the process is time-consuming and costly.
Common Hurdles
The main challenge with verbal agreements is providing evidence of the parties’ agreement. These disputes often boil down to one person’s word against another. With this in mind, the most commercial solution is attempting to negotiate a commercial resolution to the dispute rather than spending money on legal proceedings.
Other Considerations
It is important to remember that verbal agreement (or written agreement) will also include representations about the service or product before finalising the agreement. This will include claims made to entice you to enter the agreement.
For example, suppose the agreement is for the delivery of services. Here, the service provider promises they can provide the services within a specific timeframe or to a certain quality. In that case, these representations will likely form part of the agreement.
Key Takeaways
In summary, verbal agreements are enforceable in most cases. You will need to consider what evidence you have to support the agreement. However, if there are evidence issues, this may make the dispute difficult to resolve. Furthermore, legal proceedings can be time-consuming and costly. Accordingly, negotiation is often a more commercial option.
If you would like advice or assistance managing a dispute, our experienced dispute resolution 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
The main challenge with verbal agreements is providing evidence of what the parties agreed to.
Verbal agreements are generally enforceable if they are legally binding. A contract is a legally binding agreement. To be enforceable in court:
- one party must offer terms, and the other must accept the terms (agreement);
- the parties must exchange something of value, such as money (consideration); and
- the parties must intend to be legally bound by the terms of the agreement (intention).
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