What Is a Verbal Contract in Texas?
A verbal contract is an oral or spoken contract as opposed to a written contract. Under Texas law, not all contracts must be written to be legally binding; some are oral agreements of parties that are known as verbal contracts. The parties to such contracts may choose to enter into an oral agreement if the person prefers not to have their obligations on paper.
If a verbal contract is for something that must be under written contract according to the law , it may be void and unenforceable. Contracts that are not required by law to be in writing include agency, partnership, employment, leases for a period of one year or less, and sale of goods. For a verbal contract to exist, there has to be an offer by one party and acceptance by the other. The contract must also have consideration and the parties must have a meeting of the minds. A verbal contract would be enforceable when both parties have fully performed their end of the bargain.
Enforceability of Verbal Contracts in Texas
Verbal contracts, also known as oral contracts, are permitted under Texas law, but they are limited in scope and may not be legally binding in all situations.
In fact, there is a statute of frauds in Texas that specifically lists verbal contract situations where the agreement must be in writing to be enforceable. You can find these exceptions in Texas Real Property Code Section 26.01 and Texas Business and Commerce Code Sections 26.01 – 26.02, which apply to real estate sales, leases, mortgages, powers of attorney, sales of goods, assignments of security agreements, and modification of loans.
In Texas, however, verbal contracts can also be binding in many situations. The question of verbal contract legality is typically very fact-driven. The Next Level Law Firm presented an overview of how verbal contracts are viewed in Texas: "Whether or not verbal contracts are enforceable in Texas depends on the type of contract and the circumstances involved. A verbal contract is enforceable under various exceptions to the Texas statute of frauds. For example, the statute of frauds does not apply when goods to be sold are specially manufactured, a party to the contract has relied to his detriment, or an enforceable contract is in partial performance."
Whether you can legally enforce a verbal contract in Texas will depend on the circumstances surrounding the contract.
Exceptions to the Rule: When a Verbal Contract Doesn’t Count
While the Texas Law does technically consider verbal contracts to be enforceable with a few exceptions, there are some general situations where verbal contracts are not valid:
Contracts for the sale of land or real estate
Contracts that cannot be performed within one (1) year
Contracts for the sale of goods in the amount of $500 or more.
How to Prove a Verbal Contract
To prove that a verbal contract exists, you must provide evidence of the exchange. In a court of law, you can use witness testimony from others who were aware of the contract or agreement, communications between both parties (text messages, e-mails, etc.), and actions or conduct of the parties in fulfilling their part of the agreement. For example, if two businesses agreed to a contract, you might testify to the specifics of the contract, be supported by communications between you (e-mail), prove that you provided what you agreed upon, and prove that the other party failed to fulfill their contract with testimony and communication, and so on. The burden of proof in a Texas civil court is the same as for any other civil matter: a "preponderance of the evidence", which is simply defined as showing that what you allege is 51% more likely true than not. This differs from a criminal case, in which the burden is "beyond a reasonable doubt" – about 90% – because of the widespread consequences for a defendant.
Advantages and Disadvantages of Verbal Contracts
Absolutely! Many English-speakers find it harder to grasp the concept of a verbal contract because they associate the word "verbal" with "oral"—but most contracts, even those that are called oral contracts, are not really mostly oral. If you are talking to a real estate agent and say, "If you can get me into that house for $300,000, I’ll take it," and the agent answers, "Okay!," you could have a binding contract on your hands. An oral contract is a contract that is not in writing. It can be a contract that is partly oral and partly written, but it does include some oral agreement.
Why would either party want to avoid a written contract? Why agree to something in person if you can write it down and make it more official? There are pros and cons to both arrangements. Understanding all these complications ahead of time can help you negotiate a stronger contract in Texas , whether verbal or written.
One big advantage of verbal contracts is that they can be very flexible. If you agree to a price over the phone and then discover that the deal is not as sweet a deal as you thought, you still have some room to negotiate. This isn’t true of all verbal contracts, but other types of contracts, like those between spouses, are often largely informal.
On the flipside, because verbal contracts are where the verbal and the written parts of the contract meet, they can also cause conflicts. If the parties disagree about what a verbal modification or cancellation of the contract means, the default will be that the contract remains in effect. It’s not like one person has this written contract that says to go to the bank. Verbal contracts are not the strongest in terms of enforcing your rights. For this reason, most business contracts are best when written down.
Tips for Making Verbal Contracts Stronger
In general, it is a good idea to have all major business arrangements in writing. However, since many verbal contracts are made in the course of everyday transactions and conversations, it is usually impractical to paper every agreement you have. There are steps you can take, however, to protect yourself in the event that the terms of your verbal agreement are disputed. First, make a strong statement: If you are uncomfortable with a certain term or the lack of a term in the agreement, be clear that you want the issue resolved before proceeding. In other words, voicing your concern may help to avoid creating an ambiguity. Second, when a verbal agreement has been verbalized, follow up with an email reiterating the agreement to establish a record. Third, if there are witnesses to the agreement, such as coworkers or friends, have them document what they heard. While this may not be perfect evidence, it could be helpful in showing an objective basis for your side of the story.
Closing Thoughts on Texas Verbal Contracts
In conclusion, verbal contracts in Texas can be as legally binding as their written counterparts, but they also carry a higher degree of uncertainty. Because verbal contracts are often based on oral communication and mutual understanding, they can be difficult to enforce when one or both parties have a different recollection of the agreement’s terms. In this way, it’s essential to understand the key legal principles that govern verbal contracts in Texas.
Throughout this article, several principles have been highlighted:
- Verbal contracts are enforceable under Texas law, even if no tangible evidence of their existence can be found.
- Under two core doctrines – "part performance" and "promissory estoppel" – an oral contract may be enforceable even if its terms cannot be proven.
- Written contracts are the most reliable legal agreements, yet even well-documented contracts can still be subject to interpretation .
Given these complexities, it’s advisable for anyone engaging in a verbal agreement to take steps to protect themselves. These steps should include:
- Ensure that the verbal contract is well-defined and covers all the terms necessary to protect both sides.
- Document the agreement with follow-up emails or text messages that recap the terms and conditions.
- Consider the use of witnesses or video/audio recording as a way to provide evidence of the agreement’s terms.
- If a dispute arises, seek legal counsel to help navigate the complexities of the verbal contract and the possible paths forward.
In sum, verbal contracts can be a useful tool when entering into a business deal in Texas, but they are not without risk. Careful attention to key principles and adopting best practices can mitigate this risk, but employers should understand that under Texas law, verbal contracts carry a high standard of enforcement and adherence.
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