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How to make a verbal agreement legal


So you’re talking to someone, and you both want something from one another. You make an offer, and they accept it in return for a favour. On the surface of it, everything seems fine and dandy, but how do you know if the verbal agreement that was just made is legally binding?


What guarantee do you have that they will follow through with the verbal agreement?


Essentially, a verbal agreement, also known as an oral contract, is one that is made without a formal written contract. There isn’t a document executed proving that one party will actually do what they agreed to as understood by the words spoken and their physical actions.


The binding power of verbal agreements can be a grey area for those who aren’t familiar with the legalities of contract law. Most oral contracts are legally binding. However, there are exceptions to this rule based on how the agreement is made and the purpose behind the arrangement.


Before trying to figure out what makes verbal agreements legal, it’s critical that we understand the elements that make a valid contract.


What makes a contract valid?


In this example, let’s say you took a loan of $100 from an uncle to repair your phone. For a contract to be valid, certain elements need to be present.


Offer an acceptance


Your uncle offers to loan you $100 to repair your phone. You accept the money in promise to pay him back at a future date.


Lawful purpose


For a contract to be valid, it must be lawful. For example, your uncle can loan you the money to repair your phone, but he can’t loan you money to rob a bank for it to be regarded enforceable.


Lawful consideration


There must a form of exchange between the parties. This can be in the form of monetary value or otherwise. For example, in return for your uncle’s loan, you promise to pay it back in future. So long as the consideration is legal, the contract becomes valid. If the consideration is illegal, say you tell your uncle you’ll repay him for the $100 loan with drugs, the contract becomes invalid.


Certainty


The terms of the contract must be certain. There must be no room for vagueness, incompletion, or mistake or misrepresentation. It must be very clear that your uncle will loan you $200 and that you will pay him back when you get your next paycheck.


Free party consent


For a contract to be valid, parties have to consent freely and must be of sound mind. This means that no one to the contract is not willingly opting into it and are not unduly influenced, coerced, under duress or misrepresented. In other words, you and your aunty must understand the full intention of the contract terms and are fully aware of the consequences of it. Competency and capacity fall under this category as these elements are critical in the ability to fully understand the extent of the contract being agreed to.


Situations where verbal agreements are not binding


There are, however, some events where verbal agreements are not binding. These include:


  • Sale or transfer of real estate property

    When the contract terms will outlast the lifetime of one of the parties, such as those in a copyright agreement

    When the goods being sold is greater than $500

    When marriage or divorce is involved

    If the contract terms will take more than a year to carry out

    When the contract consists of paying another individual’s debt


    If in doubt, it is advised to get in touch with a legal advisor who can clarify the legal technicalities of the verbal agreement you are involved in.

    Article provided by Australian Family Lawyers

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