“A verbal agreement ain't worth the paper it’s printed on,” Louis B. Meyer is supposed to have advised. Still, from a legal perspective, a verbal agreement in lieu of a written contract is generally binding. When you reach a verbal agreement with a client and start to perform services, you are both acting as though a contract is in effect. Therefore, in the eyes of the law, a binding agreement is in effect. The verbal agreement, no matter how brief, is a contract.
The most common issue which arises is that verbal contracts are extremely hard to prove to have ever actually occurred in the first place. Evidence such as witnesses and an overall preponderance of evidence will be necessary to prove that a party violated verbal contracts. Therefore, it can be deemed that unwritten contracts, as opposed to formally written contracts, are not weighed as heavily or given the same legal merit in a court of law due to the lack of actual physical evidence of the contract.
But what happens if something goes wrong with the project? In that case, you and your client will explain your respective understandings of what was agreed to. Not surprisingly, those understandings often differ. So while the verbal agreement is binding, the two parties are often in disagreement as to what each party is bound to do.
Who determines what each party to the verbal contract really said and meant? That responsibility typically falls to a trier of fact – a judge, jury, arbiter or mediator. Unfortunately, the trier of fact was not there to hear the verbal agreement, so they have the difficult task of making a ruling based on differing testimonies of the two parties. And in the case of a jury trial, the trier of fact likely does not fully understanding the types of services you render or the prevailing standard of care you must meet when delivering those design services.
There are plenty of different ways that a contractor can get in trouble with an owner or its subcontractors. One is to talk too much and wind up entering into a separate enforceable oral contract. The existence of an oral contract is a factual issue that will be decided by a jury or a judge in a trial without a jury, also known as a bench trial. However, the formation of a contract requires the 6 items stated in the diagram. If those elements are proven by one of the parties, an enforceable contract may have been formed and someone may have to pay. There are some limited situations in which the law requires that a contract be in writing. Nevertheless, the best course of action is to speak with caution so that there is no opportunity to argue that an oral contract was made.
The statute of limitations for an oral contract is three (3) years. Miss. Code Ann. §15-1-29. So, you may want to watch what you agree to do or you may lose sleep for quite some time until the statute of limitation expires. Check your State statutes.
We recommend that verbal (oral) contracts be avoided if at all possible.
James G. Zack, Jr.
Navigant Construction Forum,
Navigant Consulting, Inc.