Is a Verbal Agreement Legally Binding?
Is a Verbal Agreement Legally Binding in Australia? What the Law Says
“But we never signed anything!” is a common response when a contractual dispute arises. However, the absence of a signature does not necessarily mean there is no legally binding Contract.
In Australia, Contracts can generally be made verbally, in writing, or through a combination of conversations, emails, text messages and the conduct of the parties. However, proving exactly what was agreed can become much more difficult when there is no written Contract.
So, can verbal agreements be legally binding in Australia? Yes, but it depends.
What Is a Verbal Agreement?
A verbal agreement is an arrangement made through spoken words or conduct rather than a formal written Contract.
For example, you might agree with someone that:
- you will provide services for $5,000;
- a business partner will receive a specified share of profits;
- you will purchase an item for an agreed price; or
- someone will complete certain work by an agreed date.
If the necessary elements of a Contract are present, the agreement may be legally enforceable even though nothing was signed.
What Makes a Verbal Agreement Legally Binding?
Simply having a conversation with someone does not automatically create a Contract. Generally, there are several important elements to consider.
- Offer
One party must make an offer. For example: “I will build your website for $5,000.”
This could constitute an offer, depending on the circumstances and what was communicated between the parties.
- Acceptance
The offer must be accepted by the other party. For example: “Yes, I agree. Let's go ahead.”
Acceptance may be communicated verbally, in writing, or in some circumstances, demonstrated through the parties’ conduct.
- Consideration
Generally, each party must provide something of value in exchange for the other party’s promise. This is known as consideration. Consideration may include money, services, property, rights or another recognised benefit.
- Intention to Create Legal Relations
The parties must generally have intended their agreement to have legal consequences. This is particularly important when dealing with informal arrangements between friends or family members.
A conversation such as:
“I'll help you move house next weekend if you help me move next month”
may not necessarily be treated in the same way as a commercial agreement between two businesses.
- Legal Capacity
The parties must have legal capacity to enter into the agreement.
- Genuine Consent and a Lawful Purpose
The agreement must also be entered into freely and for a lawful purpose.
Issues such as misleading conduct, undue influence, duress or other circumstances affecting consent may affect whether an agreement is enforceable.
So, Why Is It Better to Have a Contract in Writing?
The biggest problem with a verbal agreement is often not whether an agreement could be legally binding, but whether you can prove what was actually agreed.
Consider the following example:
You tell a builder:
“I'll pay you $20,000 to renovate my kitchen.”
The builder says you agreed to $20,000.
You say you actually agreed to $15,000.
There is no written Contract.
If a dispute arises, the issue may ultimately become one of evidence: what did the parties actually agree?
A written agreement can provide evidence of:
- the agreed price;
- what each party must do;
- when obligations must be performed;
- payment arrangements;
- termination rights;
- warranties;
- what happens if something goes wrong; and
- any other important terms
In short, putting an agreement in writing can reduce uncertainty and help prevent a disagreement from developing into a costly legal dispute.
Can Text Messages and Emails Create a Contract?
Potentially, yes.
A Contract does not necessarily need to be contained in one formal document. Depending on the circumstances, emails, text messages and other communications can help establish what the parties discussed and whether they reached an agreement.
However, simply having a conversation or exchanging messages does not automatically mean a binding Contract exists.
The surrounding circumstances and the actual content of the communications matter.
What If Someone Says, “I Never Agreed to That”?
This is where verbal agreements can become particularly complicated. If one party says:
“That's not what we agreed”, then the Court may need to consider evidence about what happened. This could include:
- emails;
- text messages;
- invoices;
- receipts;
- bank transfers;
- photographs;
- witnesses;
- subsequent conduct;
- documents created after the conversation; and
- communications between the parties.
Are There Agreements That MUST Be in Writing?
Yes. This is one of the most important exceptions to remember.
Although many Contracts can be formed verbally, there are important exceptions where legislation or other legal requirements impose particular formalities. For example, transactions involving interests in land are subject to specific requirements, meaning you should not assume that a verbal agreement to buy or sell property will be enforceable.
For this reason, it is important to consider the nature of the agreement rather than assuming that every verbal promise is legally enforceable.
What If You Have Already Made a Verbal Agreement?
Don't panic, but don't ignore it either. If you are involved in a dispute over a verbal agreement, start by gathering all available evidence.
You should also consider obtaining legal advice before making admissions or sending messages that could affect your position.
What Happens If Someone Breaches a Verbal Agreement?
If a legally enforceable Contract existed and one party failed to comply with its terms, the other party may potentially have a claim for breach of Contract. Depending on the circumstances, remedies may include a claim for damages or other relief. However, the first hurdle may be establishing that a Contract actually existed and determining its terms. This is often much easier when the agreement is documented.
The Bottom Line
Yes, verbal agreements can be legally binding in Australia. But that does not mean every promise or conversation creates a Contract.
The key questions are:
- Was there an offer?
- Was it accepted?
- Was consideration provided?
- Did the parties intend to create legal relations?
- Did the parties have capacity?
- Was the agreement lawful and entered into freely?
And importantly:
Does the law require this particular type of agreement to be in writing?
Even where a verbal agreement is legally enforceable, proving exactly what was agreed can be the biggest challenge.
At Lawgix, We Can Help
Whether you are entering into a business agreement, dealing with a Contractual dispute, purchasing property or trying to enforce an agreement, getting legal advice early can help you understand your rights and options.
Don't rely on “we had a verbal agreement” when thousands of dollars is at stake.
If an agreement matters, get it in writing.
