The effectiveness and legality of verbal contracts

Verbal contracts can be legal and binding under certain circumstances. However, they may be difficult to enforce and written contracts are usually better.

In today's world, most types of business transactions involve some type of written contract. It may seem strange and unheard of for a company or person to use an oral, or verbal, contract, but this does still occur in some cases. Are verbal contracts legal in California, and can they be enforceable in court if there is a disagreement?

What is the definition of a verbal contract?

A verbal contract, according to the Houston Chronicle, is an oral agreement, rather than one that is put in writing. Many types of verbal contracts are legal and may be enforceable in California and other states. However, it is often difficult to enforce an agreement that was based on word only.

When might a verbal contract be a good idea?

Most business owners understand that a poorly worded contract, or a verbal one, may result in serious legal problems if there is a disagreement. However, those who hire out for small jobs or work with friends may believe that an informal verbal contract is sufficient. For example, the owner of a small family-owned shop might have caught a virus on his business laptop, so he decides to pay a friend with computer knowledge under the table to fix his laptop. Rather than draw up a contract, the shop owner might decide it is not worth the trouble, and both parties simply agree on the payment amount and type of work to be done. If all goes well and the computer is cleaned with no issues, both friends will be able to end the transaction happily.

What happens if there is a dispute?

However, what if the friend is unable to repair the laptop, and the shop owner believes he damaged the computer and refuses to pay? Both people might have a valid reason to believe there was a breach of contract. They may be able to take the matter to court, but the judge would likely not know the original terms of the contract. Unless either side could offer tangible proof that the other person breached the contract, the judge might be forced to drop the case or make a judgment based on his or her discretion, rather than the actual contract terms. It is easy to see how a written contract may avoid a dispute with associates and possibly preserve friendships.

Are there some instances in which a verbal contract is not legally enforceable?

The United States Statute of Frauds dictates which agreements must be put in writing in order to be considered enforceable. The following transactions fall under the Statute of Frauds:

  • Jobs that are expected to take over one year
  • An agreement to pay another person's debt
  • Any transaction of $500 or more
  • A contract of marriage
  • The sale of real estate or land property

It is often in a person's best interests to get a contract in writing, no matter how informal the job. It may be necessary to speak with a business law attorney in Tustin in matters of contract disputes.