“You’ve got a deal!”
Is the oral contract enforceable?
A contract does not have to be a formal written document. It can be oral or partly oral, partly written. The essential elements of a contract are generally considered to be:
Offer presented and acceptance
Consideration; and
Intention to create legal relations
While a purely verbal contract can be problematic at times, it does not completely extinguish your enforceable rights. To establish the existence of an contract between parties there must typically be evidence in some form, either oral or written. Oral evidence includes a testimony from someone who witnessed the agreement. Those witnesses may be able to provide a statutory declaration or an affidavit attesting that they saw the agreement take place including any terms of the agreement they can recall. Written evidence includes text messages, emails, letters or written material proving there was an agreement reached. In addition, it is good practice to keep any form of ongoing performance of the contract, for example:
record a schedule of payments; or
timeline of events; or
any quotes, receipts, invoices, bank statements, delivery dockets, purchase orders
The distinguishing feature of an enforceable contract is whether there was the intention by both parties to be bound by the terms said or written. The terminology used is key. Even some written contracts can become unenforceable if there is no consideration or the agreements are for illegal purposes. The fact the contract is only oral, does not make it unenforceable. An oral contract may work if there are no disputes.
However, too often one party will fail to fulfill their obligations under the contract e.g. to repay a loan, transfer a property. When this happens, uncertainty arises as to the enforceability of the contract terms. This leads to the job of determining each party’s rights and obligations. If a dispute arises, the priority is to prove the existence of the oral agreement with any evidence available so you can define the terms of the contract and the best way to enforce it.
Recommendations
In order to prevent yourself getting involved in a dispute we would recommend taking these 4 steps to formalise any agreement into a written contract;
