Introduction
Being a business owner, you often enter into various agreements. Some of the agreements you choose to make are verbal, without writing. A verbal agreement is a form of contract; it is made between the parties without being established in writing. That type of agreement can be made via phone call or by handshake during the meeting. But the main thing that comes to mind is, “Is a verbal agreement binding?” As we look into referring to Pennsylvania (PA) businesses, some rules and regulations govern verbal agreements.
In this article, we address what a verbal agreement is, when it becomes binding, when it is considered fraud, what is an exception, etc. It helps you to procure for PA-based businesses. It is also helpful for those who want to enter into a verbal contract.
What are verbal agreements?
As per the suggested name, a verbal agreement is a form of contract that is made verbally between the parties. Here, the contracting parties set the terms and conditions by spoken word, telephonically, or expressly, without putting in writing. In some cases, the contracting parties, after entering the verbal agreement, put the terms and conditions in writing for the protection purposes of their rights.
Verbal agreements also seem like written agreements, but they hold legal value in Pennsylvania business transactions.
However, it is advisable to make a contract in written form compared to a verbal agreement. Because it becomes challenging to prove if any disputes arise between the parties. There is no documentary record maintained in a verbal agreement; thus, it is difficult to prove on which terms and conditions the parties agreed.
However, if some specific conditions are met, then a verbal agreement is legally binding. Such as if the terms and conditions of a verbal contract are understood in the same way by the contracting parties. This also depends on the nature of the transaction and certain industry rules.
One thing you should note is that verbal agreements are legally enforceable in PA courts. However, it is difficult to prove in court without evidence.
What is the statute of frauds?
The statute of frauds refers to the legal theory that, according to that concept, some specific contracts need to be in writing for enforceable purposes. A verbal contract is not among those contracts. It is not considered a legally binding contract in a court of law.
The aim of the Statute of Frauds is to prevent false claims that occur through verbal agreement. It also prevents misunderstandings between the contracting parties. In this way, the concept of the Statute of Frauds protects individuals who enter into a verbal contract without understanding its terms and conditions and are held liable for it.
The Statute of Frauds applies to different types of contracts in Pennsylvania, such as real estate deals, leases lasting more than three years, sales of goods worth over $500, and promises made by executors regarding the deceased person’s debts.
If a verbal contract falls under the Statute of Frauds, it can be enforceable under the law. There is an exception, such as the partial performance of a contract. If one party performs their terms under the contract. In that case, the other party is liable for their part.
The statute of frauds plays a crucial role in a business agreement; everyone should know that concept before entering into the contract. Therefore, the contracting parties should agree in written form; it helps prevent confusion or disagreement in the future.
What types of contracts are required to be in writing?
Certain types of contracts must be in written form according to the concept of the Statute of Frauds. These are listed below:
Contracts for the sale or transfer of land:
Contracts related to the sale or transfer of land must be in written form. This type of real estate transaction includes significant rights and obligations of the contracting parties. In some cases, it complies with the sum of the amount. A written agreement helps the parties to prevent disputes related to the terms and conditions of the sale. It also provides a piece of evidence of the buyer and seller’s intentions.
Contracts that are not completed within one year:
Some contracts are not performed within one year. This type of contract is required to be in writing. It specifies the terms and conditions related to the performance date, payment, and other clauses that help to prevent future disputes between the parties.
Contracts for the sale of goods exceed a certain value:
Contracts over a certain amount of sale are required to be in writing. According to the provisions of the Uniform Commercial Code, there is a requirement for the sale of goods over $500.
Contracts paying for another person’s debt:
When a person agrees to pay another person’s debt, that contract must be in writing. Because they make a promise and undertake to pay the debts of another person. This contract is necessarily required in writing, with specific terms; it protects the rights of the contracting parties.
Contracts related to the marriage:
The marriage contract must be required in writing. In this contract, parties set the terms and conditions, such as how to divide the property in the case of divorce. This contract defines the distribution clauses, like the arrangement of assets, terms of alimony, etc. It will help them in the event of the end of the marriage.
Contracts related to the estate of a deceased person:
If a person appoints an executor by making a will and wishes to arrange the distribution of their assets after their death. This arrangement must be in written form. This contract clearly shows the duties and responsibilities of an executor. Also, it defines the deceased’s wishes, making them legally enforceable. It helps to protect the rights of beneficiaries and reduce disputes among the legal heirs and beneficiaries.
What are the exceptions to the statute of frauds?
There are some exceptions to the concept of a statute of frauds. Some common exceptions are listed below:
Part performance:
In the oral agreement, if one party performs their part of obligations, which is a part of the oral contract. In that case, they can be entitled to enforce it in court.
Admission:
The admission is the best evidence according to the law. If one party brings an action against another party who admits the fact of the oral contract, it is an exception to the Statute of Frauds.
Promissory estoppel:
The legal principle is that, if one party makes a promise to another party that is not possible to enforce by law. Another party relies on that promise and suffers losses.
Exceptions under Pennsylvania law may vary from state to state, or depend on other circumstances of the case. If you are confused about which circumstances a verbal agreement falls under, an exception. Then please seek advice from an experienced business consultant.
When can a verbal agreement be binding?
A verbal agreement becomes legally binding if some specific conditions are fulfilled. According to Pennsylvania, a written contract is not required to be enforceable.
The contracting parties agree by free consent to the agreement. They accept the terms and conditions of the oral agreement with the same terms and meaning.
The consideration is also a part of a legally binding agreement. The verbal agreement outlines the terms and conditions with certain consideration. It can be an element of an enforceable contract because an agreement without consideration is void.
However, there are certain types of contracts required to be in writing under this law for enforceable purposes. Such as a contract for real estate and leases of more than one year.
Conclusion
It is true that a verbal agreement binding in PA business. But some conditions need to be met. However, such an agreement is challenging to prove in court because of the lack of documentary evidence. Some criteria are available in that situation for a verbal agreement to be binding on the parties involved. Such as part performance of a contract, an admission of the party related to the contract, promissory estoppel, etc. But, the best practice for the contracting parties is to put the agreement in writing form. It helps them to prevent misunderstanding and disagreement. If we refer to the concept of the Statute of Frauds, there are some criteria that require certain types of contracts to be in writing for enforceability, such as real estate deals, leases, and agreements for more than one year, etc.
