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Contractual agreements are legally binding and allow the courts to enforce or order damages if one party does not uphold their obligations under it. They specify what each other’s rights and obligations are to avoid disputes. However, you can make some agreements verbally. This means that there can be confusion or conflict as to what was agreed on. Generally, verbal agreements are enforceable as long as they meet the elements of a binding contract. However, there are times where a verbal agreement may not be enforceable. This article will outline what those situations are and how to avoid them.

What Is a Verbal Agreement?

As the name suggests, a verbal agreement is a situation in which two parties agree to something orally. Generally, this means that you haven’t written anything down, and the only evidence of an agreement is the word of the two parties.

When Is a Verbal Agreement Enforceable?

Verbal agreements are enforceable in the same circumstances as any other contract. Therefore, it must meet all the elements of a binding agreement. The table below outlines what those elements are.

Offer

The party proposing the contract must clearly state what they are offering and what the other party must give in exchange.

Acceptance

The party you are offering the contract to must accept it within the terms defined by the offeree. An acceptance that is not within the terms that the offeree stated will not be valid.

Consideration

Both parties must either benefit or suffer a detriment from the contract for it to be binding. For example, one party might receive goods, and one party might receive money. 

Intention

Both parties must intend for the verbal contract to be binding during the formation of the contract. If they do not, the contract will not be binding.

Certainty

There must be certainty as to what the terms agreed in the contract are.

Issues to Look Out For

Intention

There are generally two contentious issues that crop up with a verbal agreement. The first one is intention. It can be hard to determine if both parties intended for the contract to be binding during formation. It is much easier to determine if either party intended for a contract to be binding if they wrote it down, as both parties clearly understood when they signed the document. Generally, it will come down to whose word is stronger and the circumstances of the binding contract.

Certainty

Another contentious issue is whether there is certainty in the terms. It can be hard to decipher the terms of a binding contract, so disputes are generally raised on these elements. Again, the courts will look to the validity of each party’s word and the situation.

Oral Modification Clauses

Some written agreements may include a no oral modifications clause. This usually means that you can alter a written contract verbally between both parties. However, it is not that simple in New Zealand. The courts will not always uphold a no oral modification clause. This is because the basis of contract law is that contracts can be formed and modified in any way as long as they meet the elements, and so a clause like this defeats the premise of contracts. 

The New Zealand courts have said that they will not overturn any oral modification clauses verbally as long as there is strong evidence that both parties had intended to do this. This is a high threshold, and both parties must want to do it. In any other circumstance, the court will uphold the no oral modification clause. This is similar to the approach that was adopted in the United Kingdom.

Key Takeaways

All businesses and individuals should use a contract to underpin their transactions or agreements. This ensures you can get compensation if one party breaches the contract or someone fails to uphold their obligations. One of the ways that parties can form a contract is verbally. This is enforceable as long as it meets all the elements of a binding contract. 

If you need any legal assistance to ensure your verbal agreements are enforceable, LegalVision’s experienced contract lawyers can help. Call us today on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Can my verbal contract still be binding if it does not satisfy one of the elements?

No, it must meet all the elements for the contract to be binding.

Can I still vary a contract through writing if there is no oral modification clause?

Yes, as long as both parties consent to the modification through writing, this will be considered binding.

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