If you have ever entered into a verbal contract in Texas, you may be wondering whether that agreement was binding or enforceable.
Many people have a misconception that verbal agreements in Texas are not enforceable.
Fortunately, however, this is not necessarily true.
In fact, you can have a verbal agreement in Texas that is just as valid and enforceable as a written one.
If you have questions about whether your verbal or oral contract is enforceable, contact the Curley Law Firm today. Sole practitioner Adam Curley is ready and available to discuss your case and answer any questions you may have.
Is a Verbal Agreement Binding?
You might have heard stories about people who created a business based on a backroom conversation and a solid handshake. But is a verbal agreement binding? Would that handshake agreement hold up in court? In some cases, it might.
If you are creating or managing a business, it is essential to know when your agreements must be in writing and when you can shake on it. It is usually best to have agreements in writing to protect your interests.
What Is a Verbal Agreement?
Verbal agreements in Texas exist and can be enforceable if they meet certain specifications. A verbal agreement is an unwritten contract between two parties. People sometimes refer to these unwritten contracts as handshake agreements. Others call them gentlemen’s agreements. It is up to the parties to follow through with the obligations they verbally agreed to.
Some people choose to use a verbal agreement because it is quick and easy. There is less paperwork involved, and you can immediately get to work. Verbal agreements are also often used if the parties are friends. Friends going into business together often think they don’t need to put anything in writing because they know and trust each other.
If both sides meet their obligations and pay the money they’ve agreed upon, there might not be any question about the agreement’s validity. When things go wrong, or one party doesn’t hold up their side of the bargain, the validity comes into question. Even friends can let one another down.
If the verbal agreement meets the requirements of a valid contract, it may be enforceable.
Elements of a Contract Under Texas Law
Before discussing verbal contracts specifically, it is important to have an understanding of what constitutes a contract generally.
Under Texas law, a contract is formed where the following elements are present:
- An offer,
- An acceptance of the terms of the offer, and
- Consideration, or something of value provided in exchange for the acceptance of the offer.
As long as offer, acceptance, and consideration are present, there can be a binding contract under Texas law.
In most cases, there is no requirement that a contract must be signed or even in writing to be valid and enforceable.
What Are the Requirements of a Valid Contract?
Under contract law, certain elements constitute a legally enforceable and binding contract. The four main elements of a legally enforceable contract include:
- Offer—one party makes a specific proposal to enter into an agreement with another;
- Acceptance—the offer is accepted by the other party;
- Meeting of the minds—both parties understand and agree to the terms of the agreement; and
- Consideration—something of value (goods, services, money) is promised in exchange for the action specified in the agreement.
Parties entering into a contract must also have the capacity to understand what they are committing to. A contract may be voided if one party lacks the mental capacity to understand what is happening and what they are agreeing to. The agreement must also be for a lawful purpose. The agreement cannot require a person to commit a crime or fraud.
So, is a verbal agreement legally binding in Texas? The answer is, sometimes, yes. Verbal agreements can have all the elements of a valid contract and be enforced. Some agreements, however, must be in writing.
What Contracts Must Be in Writing?
Several types of agreements must be in writing, or they are likely not enforceable. Under the Texas Statute of Frauds, the agreements that must be in writing and signed by the parties include:
- Marriage agreements,
- Real estate sales,
- Real estate leases longer than one year,
- Oil and gas leases,
- Wills and trusts, and
- Medical care warranties by healthcare providers.
In most cases, a contract for the sale of goods over $500 must also be in writing.
These are typically complex matters that can have significant legal and financial consequences. The law requires these contracts to be in writing so the parties clearly understand the terms involved. A greater understanding of the terms and conditions can minimize disputes.
Challenges of Verbal Agreements
Various challenges and risks are associated with relying on verbal agreements in Texas.
Proof of the Existence and Breach
If there is an alleged breach of the verbal agreement, the party making the allegation (the plaintiff) bears the burden of proof. The plaintiff must show that each contractual element is present and that the breach of the contract terms resulted in damages. The plaintiff’s evidence must demonstrate the contract’s existence and the breach.
It is difficult to prove these components without anything in writing. It often becomes a “he said, she said” situation, with each party telling their side of the story without much supporting evidence. The plaintiff may need to rely on other evidence, such as email communications, witness testimony, invoices, and corroborated communications.
Unclear Terms
A contract can list specifics and articulate terms and conditions clearly. This clarity saves the parties from disputing terms and relying on faulty memories. Without a written contract, the terms of the agreement may be unclear, undefined, or open to varied interpretations. Unclear terms make it more difficult for the parties to perform their respective contractual obligations.
Memory and Interpretation
Our memories and interpretations of situations are not always the same. Two people experiencing the same event can remember or interpret it very differently. Memories also tend to fade over time. If you have a verbal contract, the parties might have different memories or interpretations of the terms and conditions. This can lead to significant conflict and disagreement.
Reliance on Others
Entering into a verbal agreement means you are trusting another person. You are taking someone’s word that they will follow through with the terms of the agreement. Even if you know the person well, they could change their position or fail to follow through. Without a written agreement, it is more challenging to hold that person responsible for completing their obligations. The bottom line is that it can be risky to rely on a handshake. It is possible, but challenging, to demonstrate that your verbal agreement is legally binding.
Is a Verbal Agreement Binding in Texas?
So long as your verbal agreement meets all three elements of a contract, you may have a binding verbal contract in Texas.
However, there are certain exceptions to be aware of.
Contracts that Must Be in Writing to Be Enforceable
While the general rule is that a contract need not be in writing to be enforceable, there are certain types of contracts that must be in writing.
They are governed by Texas’s statute of frauds.
Examples of contracts that have to be in writing include:
- A promise to answer for another person’s obligation;
- A prenuptial agreement;
- A contract for the sale of real estate;
- A lease of real estate for longer than one year;
- An agreement for anything that cannot be performed within one year from the date of the agreement; and
- An agreement to pay a commission for the sale or purchase of oil, gas, or mineral rights.
These types of contracts will not be enforceable unless they are in writing and signed. Thus, if you plan to enter into a contract involving any of these, make sure it is in writing first.
Still, Be Wary of Verbal Contracts in Texas
Just because a verbal contract in Texas can be binding does not mean that it will be. In fact, entering into a verbal contract can sometimes lead to dire consequences.
Often, the biggest issue that arises with verbal contracts is proving that the contract exists.
If the opposing party disputes the existence of the contract and you don’t have any proof to the contrary, it can be extremely difficult to convince a court or jury to enforce the contract.
Thus, when in doubt, err on the side of putting your contracts down in writing.
If you haven’t and are wondering what you can do, contact an attorney to discuss your options and next steps.
Contact the Curley Law Firm Today
Adam Curley of the Curley Law Firm is your go-to business law attorney. His practice focuses on helping business entities and individuals in a wide array of transactional and litigation matters.
The Curley Law Firm has been helping clients for years, and he is ready to help you too.
If you have questions about the enforceability of your verbal contract or any other matter, contact the Curley Law Firm today.