A verbal contract means your word against theirs. That can work, until it doesn’t. Let’s say you hire someone to paint your fence for $500. They do half the job and disappear. There’s no contract, just a conversation and a promise. Can you still take them to court?
Most of us make informal agreements like this without thinking twice. They feel easy in the moment. But when something goes wrong and there’s no written record, you’re on shaky ground.
Here’s what you need to know about when a verbal contract is legally binding, and why relying on a handshake might not be enough.
What Is a Verbal Contract?
A verbal contract is a spoken agreement between two or more people. It’s also called an oral or parol contract, and people often refer to it as a “handshake deal.”
You might use one for simple things, like selling a used item, lending money, or hiring someone for a quick job. In many cases, verbal contracts are legally valid.
However, they come with serious risks. As the saying goes, “an oral contract is not worth the paper it’s written on“.
Pros
- You can make deals quickly without written contracts
- Terms are flexible and informal
- Saves money on lawyers and paperwork
- Still legally valid in many cases
Cons
- People might forget or misunderstand the terms
- Harder to prove what was agreed
- Some deals must be in writing to count
- Can cause disputes if memories don’t match
Is a Verbal Contract Legally Binding?
Some verbal contracts can be legally binding, but only if they meet the basic rules for a valid contract:
- Both sides must clearly say “yes”
- Everyone must agree to the same terms
- All parties must know they’re making a contract
- Each side must give or promise something of value
- All parties must be legally able to agree (no minors)
- The contract must be for something legal
If someone was tricked, forced, or didn’t fully understand the deal, the verbal agreement contract might not hold up in court. And even if the agreement was fair, without written proof, it often turns into your word against theirs.
What Happens If Someone Breaks a Verbal Contract?
To take legal action over a verbal contract, you’ll need to prove a few key things:
- The verbal agreement existed, and both parties agreed on the terms
- You did what you promised
- The other party failed to do the same
- You suffered financial harm as a result
If you can prove those points, a verbal agreement can lead to the same legal remedies as a written one.
Kim Basinger was sued for backing out of a verbal agreement to star in Boxing Helena. The jury awarded $8 million in damages, showing that verbal contracts, when supported by evidence, can still lead to serious legal and financial outcomes.
What Contracts Need to Be in Writing?
Some deals aren’t legally binding unless they’re written. This principle comes from the Statute of Frauds, which was first passed in England in 1677. At that time, courts were overrun with lawsuits over handshake deals no one could prove, so lawmakers stepped in.
The US later adopted the Statute as common law, and most states now follow it through UCC § 2-201 when the contract is for the sale of goods, and state common law for other situations. Louisiana is the only exception. These frameworks and other state-specific laws govern contracts involved in:
- Buying or selling real estate. For example, a Commercial Real Estate Purchase.
- Agreements that last more than a year.
- Promises to pay someone else’s debt.
- Prenups, postnups, or other marriage-related deals.
- Sales of goods over $500: Includes physical items you can move, like furniture or tools.
- Sales of non-physical personal property over $5,000: Includes things like stocks, patents, or the rights to a book. Most states dropped this, with the exception of a few, like New York State.
- Executors promising to pay estate debts from personal funds.
However, a deal might still hold up without a written contract. That’s more likely if one side has already started work, made a payment, or relied on a promise and lost money.
In the case of Hoffman v. Red Owl, Hoffman trusted the company’s promise that $18,000 would secure him a store. He sold his bakery, moved his family, and paid for a lot, but Red Owl kept changing the deal and backed out. The court held them responsible.
When It’s Best to Use a Written Contract
Some deals are just too important to leave to memory. Written agreements tend to be used when:
- Hiring employees or independent contractors
- Paying for services or a custom job
- Sharing private business information
- Ending a business relationship
- Starting a joint project
- Contracts that involve a large exchange of money or property
Relying on written contracts also makes sense in personal situations, like:
- Renting or leasing property
- Lending or borrowing money
- Selling something valuable
- Separating from a spouse or partner
If there’s a dispute about a written contract, courts usually follow the “four corners principle,” meaning they’ll only look at what’s written, not what was said outside of it.
That’s why it’s important to have a solid, clear agreement in place. With Legal Templates’ free range of contract templates, you can easily create well-drafted documents to protect your interests.
Put It in Writing to Stay Safe
Even major deals can fall apart without written terms. Take Pennzoil v. Texaco, a handshake deal that ended in a $10 billion judgment after one side backed out.
That kind of risk isn’t limited to big corporations, though. A written contract can be the only thing standing between you and a messy, expensive dispute. Don’t leave it to chance. Our free templates make it easy to start.
