Verbal Agreements… Beware!

By February 12, 2018Business Law

One of the most important pieces of advice we give to our clients is to always document an agreement in writing. Time and time again, clients come to us because they are in a dispute with someone over an agreement that was made verbally, whether it be an agreement to lend money to a family member, engage a contract for services on farm or in a business or an agreement to hire farming machinery. Too often these agreements are for sums of money which are not commercially economic to engage legal services to recover, regardless of “ the principle involved”.

Is a verbal agreement legally binding?

A verbal agreement or a “handshake agreement” is an agreement that is reached between two parties through spoken communication.

An agreement does not have to be written to become a legally binding contract.  A verbal agreement can be legally binding, provided that it contains the following elements:

  1. Offer and acceptance, that is one party offers something in terms and the other party accepts the terms in full
  2. Consideration – each party must give something of value away.
  3. Each party must willingly intend to enter in to a legally binding agreement

There are some agreements, however, that always must be in writing, such as contracts for sale of land.

What are the risks of a verbal agreement? 

  • Difficult and costly to prove its existence
  • Parties having different recollections as to what was agreed, i.e. “he said versus she said”
  • One of the parties being untruthful on what was agreed
  • Uncertainty about each party’s rights and obligations

What are the benefits of a written agreement?

  • It is a physical document so you can prove there was an agreement
  • It is easier to prove the specific terms of the agreement
  • It doesn’t rely on someone’s memory of the details
  • Minimises the risk of a dispute later on

If you come to an agreement with someone, we cannot stress enough, the importance of documenting the terms of the agreement in writing.  Sometimes an exchange of emails in writing is a good way of documenting the terms of the agreement, confirming the terms of the arrangement and getting acceptance of those terms.

If you would like further advice on documenting an agreement in writing to ensure it enforceability contact Jessica Devane on 07 4671 6000.