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Verbal Contracts: How do they stand up in the Court of Law?

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Verbal Contracts: How do they stand up in the Court of Law?

“A verbal contract isn't worth the paper it's written on.” - Samuel Goldwyn, Movie Producer

In preparation for a litigation case, Brent found himself thinking of this quote. There is a common misconception that you cannot have a contract unless it is in writing. That’s not true; verbal agreements can be binding contracts. *

Why then, are lawyers so insistent about putting agreements in writing? While Brent was presenting at a seminar, an attendee referred to a verbal agreement she had entered as, “A deal’s a deal. Case closed!

He acknowledged that the law entertains verbal agreements if they can be proved. But she agreed to participate in a little experiment during the session. He says to her: “I'm going to say something to you, and you immediately reply ‘deal’, okay?” She agreed.

Brent: "Regarding the car you drove here tonight, I'll give you 20,000 smackeroos for it!"

Attendee: "deal". he then asked her, “Do we have a contract?” She assured him they did.

Harkening back to Sam Goldwyn’s point however, he asks her "what is the deal that we have? What is the contract?"

On cue, she replied “We have a contract where I am to sell you my car in exchange for $20,000.” I suggested she was misquoting me, and she acknowledged that.

She further clarified, “What you said is that you offered me 20,000 ‘smackers’, and I accepted.” Again, I pointed out that she was misquoting me. The other audience members confirmed I was right.

Furthermore, he points out that she had quickly applied her own interpretation to what she thought he had said.

And yet, all of this transpired over the course of perhaps a minute. Indeed, his ‘offer’, and her ‘acceptance’ spanned only 10 seconds, and 15 words.

The law says that for a binding contract to exist, you must have (at least) the following:

  • An offer
  • Acceptance of the offer
  • ‘Consideration’
  • Certainty
  • An intention to enter legal relations.

As to the first two items above, their verbal exchange probably qualifies as an offer and acceptance. But what about the next three ingredients to a contract? Was there ‘consideration’?

This legal term is not the same as a layperson. In contract law, it means an act, “forbearance or promise, from one person in exchange for the same from another.” Consideration can be a promise, or something as inconsequential and unusual as a “peppercorn”. Indeed, this is why many written contracts mention ‘$1’ as ‘consideration’.

As to the need for ‘Certainty’, it is here that verbal agreements often fail in Court. Even in my seminar experiment, the need for ‘Certainty’ raises two challenges:

  1. Had the audience not corrected her, the ‘car-seller’ would apparently have told a Judge that he expressly offered “20,000 smackers!” That is incorrect; it’s not what he said. Therefore, their dispute would regress into a ‘he-said/she-said’ scenario. And yet, it’s the Plaintiff (the party seeking to enforce the alleged contract) who must satisfy the court as to ‘Certainty’ of terms.
  2. Even if a Judge concluded that he said “smackers”, it raises the additional question: “What does that word mean? Does the term mean ‘money’, with sufficient ‘certainty’?

Black’s Law Dictionary contains no definition of the word. Brent found one case dealing with the word but ironically, it’s a criminal case as to whether use of the term amounted to fraud. Not a strong precedent.

All that said, some dictionaries define the word “smacker” as meaning “a dollar”. Furthermore, the Courts strive to interpret the language of individuals to give meaning to their intent.

But in this scenario, the Court would need to make a finding as to what exactly was said, notwithstanding contradictory evidence, and then decide what was meant by it. Finally, it would need to consider whether the two parties ‘intended’ to enter a contract. If a Court was left without sufficient ‘certainty’, the alleged agreement would fail.

And so, the attendee had to acknowledge that her chances of proving their ‘contract’ in Court were extremely unlikely. "Indeed, I assured her I purposely used the word ‘smackeroos’, to signify my lack of legal intent. It was, after all, just an experiment."

*(Arguably, contracts regarding land must be in writing. Furthermore, judges sometimes ‘imply’ employment contracts without any agreement between the parties whatsoever).

**UPDATE: recently a judge ordered that an emoji ‘thumbs-up’ acted as binding “acceptance” of a contract offer. It remains to be seen whether that decision gets followed by other judges.

For further information, please contact Brent Cooper or any member of our Litigation & Dispute Resolution group.

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