Are Verbal Contracts Binding?
We’ve all heard the old adage “a handshake is as good as a contract.” From a legal perspective, is it true now, if it ever was? Can a verbal agreement, or in modern times, an informal agreement made via text message or email, qualify as a binding contract? Continue reading to learn about how Texas law treats verbal contracts. Call a knowledgeable Houston business law attorney with additional questions or for help with a Texas business law or real estate matter.
Oral Contracts Are Contracts
As a general matter, this is one of the rare instances in which “common knowledge” actually bears out: Verbal contracts are valid in the State of Texas, so long as they satisfy all the necessary requirements for any valid contract. A valid verbal contract can be enforced in court, and breaching a verbal contract can open a party up to liability and even fraud charges, depending on the circumstances. Of course, proving that a verbal agreement existed can be a challenge, especially if there is no evidence other than the word of each party. Moreover, not all oral agreements constitute valid verbal contracts.
Elements of a Valid Contract in Texas
In order for any contract to be valid and enforceable, the agreement must satisfy the following elements:
- An offer (typically to buy or sell goods or services)
- Acceptance of the offer
- Mutual consideration, meaning each side obtains some benefit from the arrangement (typically, money in exchange for goods or services)
- The parties must be legally able to form a contract (meaning both parties must be of legal age and sound mind)
- The purpose of the contract must be legal (meaning the agreement does not call for the parties to commit a crime)
All of these elements can be satisfied by a verbal agreement. For example, a person may offer to sell their car to a friend for $2,000. If the friend agrees to buy the car, a verbal contract has been formed. Technically, if the seller backs out, the buyer has a claim for breach of contract. In practice, the buyer would have a difficult time claiming any damages resulting from such a breach, and thus might have nothing to recover. The contract was, nevertheless, valid.
There are a number of ways in which a verbal contract can fail to be enforceable, however. An offer must be effectively communicated and include certain and definite terms; saying “I’ll paint your house at some point for cash” is not enough to constitute an offer because it lacks a time frame and a cost. The other party must accept, clearly, rather than simply expect the agreement will be carried out.
There must also be mutual consideration. Agreeing to give someone else a gift in exchange for nothing does not create a verbal contract; the giver is free to back out without consequence. The recipient can offer consideration besides cash (such as an agreement to do the giver a favor), but something of value must be offered.
Exceptions: The Statute of Frauds Limitations
Certain types of contracts can only be made in writing. The “statute of frauds” is a legal concept that prohibits certain types of oral contracts from being enforceable as a matter of public policy. Examples of contracts that are only enforceable when written include:
- Trusts and wills
- Marriage contracts
- Real estate transfers and sales
- Any contract that lasts for more than one year from the time of the agreement
- Sale of goods exceeding $500 in price
- Sale of securities
- A promise to answer for someone else’s debts
- Lease of real estate for more than one year
If you need legal assistance with a Texas business law matter, contact the seasoned and talented Texas business lawyer Leigh Meineke at the Houston offices of Stephens | Domnitz | Meineke PLLC by calling 832-706-0244.