We\u2019ve all been there. You\u2019re in the middle of negotiating a big deal and time is running out. One party suggests doing things \u201con a handshake,\u201d which sounds friendly enough. But what does that mean, legally speaking? Can you trust that the other side will uphold their end of the bargain?
As it turns out, the answer is complicated. In some cases, a verbal contract can be binding. Other times, it might not be worth the paper it\u2019s not written on. The key is to understand the difference between the two before going into business with someone.
In general, contracts don\u2019t need to be in writing to be legally binding. That said, there are certain types of agreements that must be in writing in order for a court to enforce them. These include real estate transactions, contracts involving the sale of goods worth more than $500, and promises made in consideration for marriage.
Other than that, as long as there is evidence that the parties intended to create a binding agreement (usually in the form of witnesses or correspondence), and as long as all the basic contract elements are present (offer, acceptance, consideration), then a verbal contract can be just as valid as one that\u2019s written down.
Of course, this doesn\u2019t mean that all verbal contracts will hold up in court. If either party tries to back out of the deal or claims they never agreed to certain terms, it can be difficult to prove what was actually said and agreed upon. This is why many businesses prefer to get things in writing\u2014it provides clarity and peace of mind in case something goes wrong later on.
Consideration is an essential element of any contract, whether oral or written. It refers to something of value that each party receives under the terms of the agreement. For example, if you hire someone to mow your lawn for $50, the mower\u2019s services would be considered consideration for your payment of $50. Without consideration, there is no contract.
Not all forms of consideration need to be monetary; they can also take the form of services rendered or promises made. However, courts will sometimes refuse to enforce \u201cunfair\u201d consideration provisions\u2014for instance, if you try to get someone to agree to mow your lawn for $1 per hour when the going rate is $20 per hour.
Verbal contracts can be valid and binding under certain circumstances\u2014but there\u2019s always a risk involved when you don\u2019t put something in writing. If you do choose to enter into a verbal agreement, make sure you have witnesses present and that you exchange something of value (consideration) with the other party. And if possible, try to get at least some of the key terms down in writing so you have them on record.
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