What Is a Verbal Agreement?
A verbal agreement (also called a verbal contract, oral contract, or “handshake agreement”) is an agreement formed through spoken words rather than a fully executed written document. Unlike a written contract, there is no signed paper. Yet, under many circumstances, the spoken agreement can still create legally binding obligations between parties. In many jurisdictions, including California, spoken agreements are recognized as valid, provided they satisfy the essential requirements of contract formation.
This article provides an overview of verbal agreement law, explaining when oral contracts are legally binding and what business owners need to know to protect their interests.
Is a Verbal Agreement Binding & Legally Enforceable in California?
Verbal agreements can be binding and legally enforceable. In fact, under California Civil Code § 1622,“[a]ll contracts may be oral, except such as are specially required by statute to be in writing.”
This means, as a general rule, an oral promise can create a valid contract. However, whether it will hold up in court depends heavily on the circumstances, particularly whether the contract falls under the restrictions imposed by the Statute of Frauds.
Key Legal Elements for a Valid Verbal Contract
For a verbal contract to be legally binding, it must satisfy the same basic elements required of any contract:
- Offer — One party proposes specific terms or a promise
- Acceptance — The other party agrees to those terms without modification (the “mirror-image” rule)
- Consideration — There must be an exchange of something of value (money, services, goods, promises, etc.)
- Mutual intent / meeting of the minds — Both parties clearly understand and agree on the essential terms and intend to be bound
- Legality of subject matter — The agreement must concern a lawful function or obligation
- Certainty and definiteness of terms — The terms must be sufficiently clear that a court can enforce them (price, scope, timelines, deliverables, etc.)
If those elements are present and the contract does not fall under categories that legally require a writing, a verbal agreement can be binding.
When is a Verbal Agreement Contract Not Enforceable?
Even though verbal agreements are generally permissible under California law, certain types of contracts must be in writing to be enforceable. California Civil Code § 1624 sets forth these categories.
Under CC § 1624, the following (among others) must be in writing (or accompanied by a signed note/memorandum) to be enforceable:
- Contracts that cannot be performed within one year from the date of the agreement
- Promises to answer for the debt or default of another (i.e., certain guaranty agreements)
- Leases of real property for more than one year, or sales of real estate / interests in real estate
- In many states (under the federal version of the Statute of Frauds or state UCC laws), sales of goods above a certain monetary threshold may also require writing
If a verbal agreement falls into one of these categories, a court will typically decline to enforce it — unless there is some writing (even a simple email or memo) that satisfies the writing requirement, or unless a recognized exception applies (e.g., partial performance, estoppel, fraud by one party).
Verbal Agreement Examples & Business Use-Cases
Verbal agreements often arise in business and day-to-day dealings. Common contexts include:
- Short-term service or consulting contracts (e.g., a contractor agrees to perform a task over a few weeks)
- Simple sales of goods or personal property (under thresholds requiring writing)
- Informal employment or subcontractor agreements for brief engagements
- Short-term verbal rental agreement (under one year) — e.g., month-to-month agreements, or leases explicitly limited to 12 months or less
Because these are lower-risk, short-duration commitments, many businesses and individuals rely on verbal contracts for convenience and speed.
However, depending on the type of transaction, complexity, or value involved, a verbal contract may pose serious risk.
Why Verbal Contracts Are Risky
Partaking in oral agreements poses several risks, such evidentiary difficulties, Statue of Frauds exposure, the potential for disputes, and limitations when it comes to business planning. Understanding the risks involved is crucial in forming agreements that are binding and enforceable.
Evidentiary Difficulties
The most significant challenge when enforcing a verbal contract is proof. Without a signed agreement, enforcement often depends on:
- Witness testimony
- Emails, text messages, or other correspondence referencing the agreement
- Invoices, payments, or any performance consistent with the agreement’s terms
- Conduct of the parties (e.g., one side begins work, the other side begins payment)
Courts scrutinize such evidence carefully. If terms are vague, contested, or inconsistent, enforcing the contract becomes much harder.
Statute of Frauds Exposure
If a verbal agreement implicates one of the categories requiring a written contract under the Statute of Frauds – high-value dealings, long-term commitments, real estate transactions, etc. – the parties risk having the contract declared unenforceable altogether.
Potential for Misunderstanding and Disputes
Verbal agreements are often informal. Parties may have different recollections of what was agreed, or misunderstand deadlines, obligations, and scope of work. When memory and credibility differ, litigation may become expensive and protracted.
Limitation on Business Planning and Risks
For business owners and entities, relying on verbal agreements for recurring or high-dollar transactions can undermine predictability, complicate internal recordkeeping, and increase liability exposure.
Handling a Breach of Verbal Agreement
A dispute often arises when one party fails to honor the terms of an oral contract. From a legal standpoint, breaking a verbal agreement is treated similarly to a breach of a written contract, provided the underlying agreement is enforceable. California law does not distinguish between oral and written contracts when determining whether a party can seek legal relief; instead, the critical issue is whether the plaintiff can prove the existence and terms of the agreement.
A breach of verbal agreement claim typically requires demonstrating:
- The formation of a valid oral contract
- The specific obligations each party agreed to
- The defendant’s failure to perform
- Resulting financial harm or damages
When a breach occurs, parties may pursue several remedies, including monetary damages, restitution for unjust enrichment, or, in limited circumstances, specific performance. Courts evaluate available evidence such as emails, text messages, witness testimony, payment records, or conduct that confirms the agreement.
Because of the documentary challenges associated with verbal contracts, businesses should respond quickly when a breach is suspected. Early steps may include sending a written demand, gathering all supporting communications, identifying witnesses, and formalizing terms moving forward to avoid further disputes.
Verbal Agreement Best Practices for Businesses
If your business enters into verbal agreements, consider the following practices to protect your interests — or better yet, convert the agreement to writing.
- Confirm basic terms in writing as soon as possible. Even a simple follow-up email summarizing the essential terms (price, scope, timing, parties) can help and may serve as critical evidence later.
- Document performance or partial performance. Keep invoices, receipts, time logs, delivery records, or any indication that performance is underway.
- Use formal contracts for higher-risk or longer-term engagements. For transactions involving real property, extended services, high-value goods, or long-term leases, a written contract is strongly advisable for clarity and enforceability.
- Include witnesses or third-party acknowledgments where appropriate. For key deals, having a third-party witness or contemporaneous written acknowledgement can strengthen your position.
- Consult experienced counsel. Especially for complex or high-stakes agreements, involving a business attorney early can prevent costly disputes and misunderstandings.
What Business Owners Should Know: Key Takeaways
- Verbal agreements can be legally binding in California, but not all of them are. The enforceability depends on the contract’s content, context, and compliance with statutory writing requirements.
- The risk of dispute or litigation is higher with verbal contracts because proof is generally more burdensome and subject to credibility issues.
- For most business dealings, especially recurring, complex, high-value, or long-term transactions, a written contract remains the safer and more practical approach.
- When a verbal agreement is unavoidable or already in place, back it up with contemporaneous written confirmation or documentation of performance to preserve enforceability and mitigate risk.
Frequently Asked Questions (FAQ)
A verbal agreement is a contract formed through spoken words rather than a signed written document. It may still be binding if it meets the standard requirements for contract formation (offer, acceptance, consideration, mutual intent).
Yes — under California Civil Code § 1622, most contracts may be oral and are enforceable so long as they do not fall within categories that the law requires to be in writing.
If the agreement is of a type that must be in writing under the Statute of Frauds, then a court will likely refuse to enforce a purely verbal agreement. This includes long-term verbal lease agreements, real estate transactions, promises to assume others’ debts, or contracts not to be performed within one year.
They can, but it’s more challenging. Enforcement depends on evidence: witness testimony; emails or messages acknowledging the deal; payment or performance; invoices; and other conduct consistent with the agreement. The clearer and more documented the course of performance, the stronger the case.
Yes. Always follow up with written confirmation (email, memo), document performance or delivery, get receipts or invoices, and use written contracts for high-risk or long-term deals. When in doubt, seek legal counsel.
Why Business Legal Counsel Matters
Verbal agreements may seem convenient but their apparent simplicity often hides serious risk, especially for businesses engaged in recurring transactions, high-value services, or long-term deals. If you depend on verbal commitments, you may find yourself facing costly disputes, contested terms, or even unenforceable promises.
At Law Advocate Group, LLP, we help business owners, contractors, and enterprises navigate the complexities of contract law. Our team regularly assists clients in converting informal verbal arrangements into clear, enforceable written contracts. We also advise on the enforceability of existing oral agreements and the risks associated with relying on them.
Don’t leave your business’s future to “he said, she said.” Contact us today for a consultation and ensure your agreements protect your interests.
