What is An Oral Contract?
In legal terms, a verbal agreement is a type of oral contract that exists between two or more parties. While many people believe that any kind of verbal agreement is not enforceable by law, if proven, it can be just as binding as any written contract. By definition, a contract is any formal agreement between two or more parties, but it must include several key components to actually be binding.
Pretty much any agreement, whether written or not, is enforceable in Florida and many states . Verbal agreements involve basic elements that form the necessary foundation of a contract: Verbal contracts can be difficult to prove, however. For this reason, many people prefer to have their contracts put in writing for their records. If they do not, then they must be able to provide evidence that these elements to the agreement are actually in place, which is required to constitute an enforceable contract. In Florida, verbal contracts to do not violate the Statute of Frauds, which is a body of state law that specifies which types of contracts must be in writing.
When is An Oral Contract Enforceable in Florida?
While it is clear that some oral contracts are legally binding in Florida, it is also clear that not every oral agreement will qualify as a legally binding transaction. Certain contracts – such as those involving real estate or entities that will take more than one year to complete – must be committed to a written format in order to be legally binding.
In the absence of these specific factors, verbal agreements can be legally binding, if the following five factors are present.
Mutual consent – As always, a mutual consent component is vital to a legally binding contract, even if the parties simply verbally agree to a deal together. This means that both parties must be aware of the contract’s major elements and the other parties’ involvement, and that neither party may be forced, pressured or misled into participating in the contract. In other words, both parties must have "freely consented" to the agreement.
Capacity – For the agreement to be binding, each party must be legally capable of participating in a contract. This means that neither party is too young or too intoxicated at the time of the deal to be considered mentally competent – i.e. a child would likely not be held accountable for a transaction based on their age alone. If an agreement is made with a party who is deemed incompetent or incapable of signing a contract, that party may have a reasonable case to void the agreement.
Lawful object – The oral agreement cannot involve any illegal activity or objectionable purpose, as this would violate the fundamental purpose of the law.
Adequate consideration – The oral agreement must involve an exchange of mutually agreeable consideration between the parties. Typically, in any transaction, goods are exchanged for money. However, other forms of consideration can also be sexy – such as services in exchange for compensation.
Enforceable – Ultimately, the oral agreement itself must be enforceable if the court has to settle a dispute (or if they must compel enforcement). That is, because they could never be performed, verbal agreements that rely on future events or invalid terms are not legally binding.
The Downsides of Oral Contracts
Limitations and Risks of Verbal Agreements in Florida
Despite their common use, verbal contracts in Florida do have their potential limitations and risks. To begin with, because verbal agreements are difficult to prove, they are subject to misunderstandings or disputes over the precise terms or conditions accepted by the parties. Lack of evidence is the second issue. Since the words exchanged by the verbal agreement are not recorded in a written document, it may be problematic for one party to present sufficient evidence to prove the contract exists or to enforce its terms properly. In other circumstances, Florida law favors written agreements over verbal ones. This is often the case in situations where written documentation better serves to establish each party’s understanding of their roles and responsibilities. For example, a clear written record avoids misunderstandings and creates a written, legally enforceable record. In other cases, state law requires a written record in order to prevent fraud and abuse of consumers or other parties who may be harmed by the actions (or inaction) of a contract party. The Statute of Frauds requires that certain types of contracts be made in writing. This means that even if the terms of the agreement are fulfilled verbally, even the law may not be willing to enforce the agreement if the contract has the required elements but wasn’t written out.
How To Enforce A Verbal Contract in Florida
The key to proving a verbal agreement in court is to establish evidence of the existence of the verbal agreement. Often, there will not be any documentation on which a judge, jury, or jury of one can rely. Proving the existence of the verbal agreement at trial usually requires witnesses who were witnesses to the verbal agreement (i.e., "watchers") or participants to the agreement (i.e., "hearsay"), or other evidence. Such evidence may include emails, text messages, and recordings. Email exchanges or text messages are often used as evidence of the existence of the verbal agreement. These types of evidence often show that the parties contemplated the agreement. Generally, a judge may rely only on written evidence if the verbal agreement satisfies the Statute of Frauds. Although email exchanges or text messages are considered non-hearsay, the hearsay rule does not prevent their admissibility into evidence in fact-finder proceedings.
If emails, text messages or recordings are not available, another individual’s testimony regarding the verbal agreement is generally necessary to prove the existence of the verbal agreement. As stated above, there are only two types of individuals who may testify to the existence of the verbal agreement: (1) the watchman; and (2) the hearsay witness. The watchman is an individual who observed the verbal agreement and can testify to that fact. The individual, however, cannot provide testimony regarding the subject matter of the verbal agreement. The witness does not have to be personally acquainted with the parties to the verbal agreement. The hearsay witness need not have been present when the verbal agreement was made. However, the party offering the hearsay witness must establish that the witness is a person upon whom the parties to the verbal agreement would ordinarily converse on the subject of the verbal agreement.
An additional consideration is that the individual must be competent to testify in order for the individual’s testimony to be admissible. The witness must be able to comprehend the nature of the duty to tell the truth. This requirement is included in both the Florida Rules of Evidence (FRE) and the Federal Rules of Evidence (FRE). In addition, there is a fundamental competency requirement, which applies to all witnesses. This requirement states that a witness is competent to testify if the witness can observe the matter about which the witness is testifying and be able to relate it accurately.
Florida Oral Contract Case Law
Case Study 1: Construction Contracts
A homeowner hired a contractor to build a home and agreed to pay in full when the house was completed. The contract was verbal. The homeowner changed his mind about hiring the contractor before the work was finished and refused to pay. The contractor sued for the amount agreed upon. The court held for the contractor and ordered the homeowner to pay the agreed amount plus interest because even though there was no contract in writing, the parties had established the amount and other necessary conditions for a contract.
Case Study 2: Lease Purely Verbal
A property owner rented out his property to a tenant on a purely verbal agreement and then tried to kick the tenant out four months after the tenant had moved in, seeking to charge more rent. The tenant sued the landlord for breach of contract. The court upheld the tenant’s request for damages after finding the rental was not an oral lease but an oral agreement to lease the property for a year, thus establishing an oral implied contract. Penalties for breaking an implied contract include damages. The property owner was liable for the damages of the tenant, who had already made improvements to the home and other expenditures based on the duration of the first agreement.
Case Study 3: Real Estate Purchase Agreement
A landowner agreed to sell his property to a buyer. The price and other conditions were discussed and agreed upon verbally on several occasions. The buyer filed suit to make the purchase at the agreed price after the seller refused to comply with the agreement. The judge granted specific performance and held that the buyer had provided sufficient evidence of an oral contract , including testimony from the buyer that details of the contract were discussed over a period of time. A verbal agreement may be held up in court if other evidence supports it, such as testimonies.
Case Study 4: Employment Agreement
A person was offered a job verbally, subject to a background check that found prior convictions on the person’s record. The employer told the person that the job would not be offered if the background check failed. The person sued under the Americans with Disabilities Act (ADA) for discrimination, claiming he has a disability that explains the prior convictions. The judge found for the employer, ruling that the person had no grounds for a discrimination suit because the job offer was preliminary and contingent on the person passing the background check. Lack of contract formation certainly does not support an ADA claim.
Case Study 5: Business Partnership Agreement
Two people formed an irrigation business together. They discussed starting this business for some time, agreed on contributions and expenses, and formed a corporation. The court held for the partner who initiated the lawsuit for dissolution and withdrawal from the business. The court determined the other partner owed him money for the business and that he was entitled to his proportionate share in the assets of the firm. The court cited this as a case of implied partnership law, meaning that enough evidence existed to show that an oral partnership had been formed. Findings of an implied partnership law may be made even if a written contract is incomplete or if no contract exists at all.
Tips for Dealing with Oral Contracts
While taking a verbal approach to contract law may seem outdated, the reality is that they remain an important part of the legal landscape. Verbal agreements can be legally binding, and today — with such widespread adoption of technology — it is more important than ever to ensure that you have the appropriate documentation for any agreements you have made.
When creating a verbal agreement, or even when communicating with a client informally, keeping detailed, organized records can make a significant difference in the event of a dispute:
Clearly and Concisely Document
In terms of the key points to document, make sure that you include the relevant people involved, the locations in which the conversation occurred and the times of the key communications. Clearly documenting all conversations and emails can help ensure an easy process for determining the details of your interaction.
Confirm in Writing
While most verbal agreements can hold up in court if necessary, it is still a best practice to put just about anything in writing when possible. Be sure that both – or all – parties understand the agreement, and send each other a summary of key points. This is a good way to ensure that everyone starts out on the same page.
Be Mindful of Modern Technology
Having a modern and well-organized system in place will help on this front. Even if you fully discuss and understand an agreement, it can be easy to forget key points, or mix up details later. In addition to taking notes during a meeting or phone/business call, be sure to also follow up on key points with an email and again keep comprehensive records.
When to Call a Lawyer
Consulting an attorney may not seem necessary with a verbal agreement, but a broader context can complicate even the most straightforward of handshake deals. In situations where agreements include promises that can be broken over time, such as business partnerships or divorce settlements, the value of having a written document becomes apparent. A handshake may be sufficient to finalize a land swap involving just two neighbors and some hidden boulders, but a written contract accompanying even the simplest deal can save a lot of headache later on.
An attorney can help you determine whether you have an enforceable verbal contract. Maybe you were on the verge of signing a written consolidation agreement when your spouse verbally agreed to the terms of a final settlement. In Florida , the engraved invitation doctrine puts a lot of weight on that oral agreement. Maybe you intend to build a new office building and found a parcel of land that suits your needs. Because that resident would like to keep the parcel of land, he told you that he would be happy to sell it to you so long as his family could remain on the adjacent property. Such a deal may become (financially or otherwise) untenable for your new neighbor if more than just the parcel is sold. This seems like a suitable circumstance in which to consult an attorney regarding your verbal agreement.
Whether you see great business potential in a verbal agreement or are simply expecting fair treatment from a friend after years of letting him borrow your lawn mower, consulting an attorney is the best course of action when entering a complex deal. The best way to avoid problems is to seek legal advice.