Mostafa Mozafari
Business and Migration Lawyer

 

Verbal Agreements and Oral Contracts in Victoria

Verbal agreements and oral contracts are valid and enforceable under Victorian law, provided they meet certain criteria and statutory requirements. Whilst verbal agreements offer flexibility and convenience, they also come with risks, particularly regarding evidence and statutory compliance. It is crucial to understand these intricacies and legal standing. 

 

Individuals and businesses should approach verbal agreements and oral contracts with caution, ensuring clear communication, mutual understanding, and documentation whenever possible. When dealing with complex agreements or significant transactions, seeking legal advice is advisable to mitigate risks and protect legal interests.  

What you need to know, and how to navigate verbal agreements and oral contracts. 

Definition and Legal Standing 

A verbal agreement or oral contract is a legally binding agreement made verbally between parties without a written document.  

These agreements are recognized and enforceable, provided they meet certain criteria: 

  • Offer and acceptance: There must be a clear offer from one party and an unequivocal acceptance from the other party. 
  • Intention to create legal relations: Both parties must intend for the agreement to have legal consequences. 
  • Consideration: There must be something of value exchanged between the parties, such as goods, services, or money.  
  • Certainty: The terms of the agreement must be clear and definite enough for a court to enforce them. 

Verbal agreements are subject to the same legal principles and obligations as written contracts. However, proving the terms and conditions of a verbal agreement can be more challenging in the absence of written documentation.  

Benefits of Verbal Agreements and Oral Contracts 

  • Flexibility: Verbal agreements offer flexibility as they can be made informally, making them suitable for simple transactions or agreements between acquaintances.  

Example: agreeing verbally to lend a personal item to a friend for a specific period. 

  • Speed: They can expedite the process of reaching an agreement, which can be advantageous in time-sensitive situations.  

Example: agreeing verbally on the terms of a temporary service arrangement. 

  • Cost-effective: Without the need for drafting and reviewing extensive written documents, verbal agreements can be more cost-effective for minor transactions or informal arrangements.
  • Implied terms: Even though not explicitly stated, verbal agreements may include implied terms based on customary practices or industry standards. This can provide a framework for understanding the agreement’s scope and expectations. 

Risks and Considerations 

  • Evidence challenges: Verbal agreements can be challenging to prove in court without tangible evidence, such as witnesses or recordings, and can lead to disputes over the terms and conditions of the agreement. 
  • Memory and misunderstanding: Parties may have differing recollections or interpretations of the agreement, leading to conflicts and legal complexities. It is essential to ensure that all parties have a clear understanding of the terms and intentions. 
  • Limited scope: Complex agreements or those involving significant transactions are better suited for written contracts as the provide a higher level of clarity and detail, and reduce the risk of misunderstandings or disputes. 
  • Statutory requirements: Some agreements, such as those involving real estate, sales of goods over a certain value, or certain services, may require written documentation as per statutory regulations. It’s crucial to be aware of these requirements to ensure compliance and enforceability. 

Victoria’s Statutory Requirements and Exceptions 

Whilst many agreements can be verbal, certain types require written documentation for enforceability.  This includes financial agreements or credit agreements, all types of deeds, assignments of copyright protection, payment orders, agreements for buying, selling, or mortgaging land and houses, and agreements for the sale of a motor vehicle from a licensed trader. 

Examples: 

  • Contracts for real estate transactions, such as buying or selling land, must be in writing to be legally enforceable.  
  • Contracts governed by specific laws, like the Statute of Frauds, may need written documentation to be valid.  
  • Agreements for some services, such as those with significant value or duration, often require written contracts to ensure clarity and enforceability. 

It is extremely important to know if your transaction or agreement requires a contract or documentation prepared by a legal professional. 

Practical Tips 

To navigate the complexities of verbal agreements effectively, consider the following practical tips: 

  • Communicate clearly: clarify the terms and conditions of the agreement to all parties involved. Ensure there is a mutual understanding and agreement on key points. 
  • Document the agreement in writing: While not mandatory, consider documenting the agreement in writing, and via electronic communication (such as emails or text messages). This can serve as evidence in case of disputes. 
  • Provide witnesses and keep records: Whenever possible, involve witnesses or maintain records of the agreement discussions and terms. This can strengthen the evidence in case of legal challenges. 
  • Seek legal advice: especially for complex agreements or those involving significant transactions. A legal professional can provide guidance, review agreements, and help protect your interests. 

Verbal Agreement Checklist 

1.       Is there an intention to create legal relations?  

To be legally binding, both parties must have a clear intention to create legal relations, and understand and agree that the agreement will have legal consequences. 

2.       Are the terms clear?  

The terms should be clear, specific, and agreed upon by all parties involved. It is essential to discuss and confirm important details to avoid misunderstandings. 

3.       Does it have enforceability?  

Verbal agreements are enforceable in Victoria, but proving the terms and conditions may require supporting evidence. Parties may need to rely on witnesses, emails, text messages, or other forms of communication to substantiate the agreement. 

4.       Is the agreement documented?  

Whilst documenting a verbal agreement in writing is not mandatory, it can provide a record of the agreement’s terms and conditions and serve as a reference point helping to avoid future disputes or misunderstandings. 

The information provided by Reign Legal in this article should not be considered as legal advice. For guidance specific to your situation, it is recommended to consult with a qualified legal professional.