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Oral Agreements – Can You Enforce These?

In Australia, oral agreements can be enforceable. So, it should be no surprise that business owners can seal agreements with other parties on the basis of a handshake. Come to think of it, we get involved in oral agreements all the time. When we buy goods in the supermarket or when we order food in restaurants, the deal can fall into the purview of oral agreements.

Some people don’t think much of the ramifications until the agreement involves a larger sum of money. So how can oral agreements be enforced? You need to show that the oral agreement is legally binding by proving the essential elements of the contract. Below are the essential elements to help you understand whether your oral agreement is legally binding or not.

Offer and Acceptance

In order for an agreement to be established, a clearly identified offer must be made by one party to another and the offer must also be accepted by the other party. An effective offer must clearly indicate the willingness of the offeror to be bound by the terms of the contract. Likewise, in order to be effective, an acceptance should be made known to the other party and it should be in accordance with the proposed terms of the offer. If the essential terms in the agreement are still open for bargain, the contract will not be legally binding on the parties.

Consideration

Consideration is that which has value in the eyes of the law and which a party may receive in exchange for the goods or services he or she provides. It is something of value swapped between the parties, but it is not necessary that what the parties get out of the agreement is of equal value as long as there is some form of consideration.

Intention to Enter into a Legal Relation

Both parties must have an intention to be legally bound by the terms set in the oral agreement. Commercially, there is a presumption that agreements entered into this particular context are intended to be legally binding.

Capacity

All parties to the contract must have the capacity to enter into such agreement in order for the contract to be enforceable. The parties should have adequate mental capacity to fully understand and appreciate the extent and nature of their actions in order to be able to enter into a contract.

Proving the Existence of an Oral Agreement

To be able to enforce an oral agreement, you must prove that it existed between you and the other party. Often, this is difficult to prove in court. You and the other party may have different views on the terms and versions of the events.

Although this might be difficult, you can show oral and written evidence to prove that your oral agreement exists and that it is enforceable because it fulfils all the essential terms of an agreement.

Oral Evidence

Oral evidence may come in the form of your testimony corroborated by the testimony of other people. This testimony can be set out in an affidavit which is a written statement that is affirmed and used as evidence in court.

Written Evidence

Written evidence can come in the form of emails, letters or even text messages that show proof of your correspondence with the other party that can prove:

  • confirmation of the terms of the agreement;
  • discussion of the key terms of the agreement;
  • confirmation that money is owed and that payment will be made.

Receipts, purchase orders, delivery dockets, bank statements or invoices can also be used to show an exchange of money between the parties.

Avoid Oral Agreements

Although oral agreements seem fast and easy, having a written contract saves you time and money because there is a record of the terms of your agreement and it is clear what you have agreed upon as set out in the terms of the contract.

Takeaway Points:

  • An oral agreement is enforceable provided that you can demonstrate the essential elements of the contract.
  • In order to establish an agreement, there should be an offer by one party that is accepted by the other.
  • Cosideration is something of value swapped between the parties, but it is not necessary that what the parties get out of the agreement is of equal value as long as there is some form of consideration.
  • There is a presumption that agreements entered into this particular context are intended to be legally binding.
  • Although it is more difficult, you can show oral and written evidence to prove that your oral agreement exists and that it is enforceable.

 

Jaclyn-Mae Floro, BCompSc

Contact W3IP Law on 1300 776 614 or 0451 951 528 for more information about any of our services or get in touch at law@w3iplaw.com.
Disclaimer. The material in this post represents general information only and should not be taken to be legal advice.

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