The Nature of Oral Contracts
A verbal agreement, much like a verbal contract, is an oral understanding between two parties. Verbal agreements do not necessarily have to be for more than $500 in Florida. And because verbal contracts are oral, there are no written documents that show the existence of the agreement or the terms of the agreement, but rather, they are formed mutually with unspoken gestures. With regard to business, examples of verbal agreements could arise in the form of hiring a new employee , referring a client to a vendor or furnishing credit to a business from a supplier. These examples are suggestive of how verbal agreements may be utilized during the course of business relations and exchanges. Generally speaking, contract law only applies in situations that involve enforceable agreements, including verbal agreements. Any attempt to either break the oral agreements or breach the contract terms would then give the parties to the contract remedies in the event that verbal promises were made and then later broken. As is true with written contracts, verbal agreements cannot be enforced if they are illegal or are otherwise unenforceable under Florida contract law.
Legal Basis for Oral Agreements in Florida
The legal framework for verbal agreements in Florida is primarily governed by common law, although there are specific statutes that apply to certain contracts or agreements. While the general rule in Florida is that oral contracts are legally enforceable, there may be exceptions.
Section 725.01 of the Florida Statutes abolishes the common law prohibition against oral contracts. Parties making contracts are free to agree to terms regardless of whether they are in writing. In Betancourt v. Allman, 121 So.3d 661 (2013), the Third District Court of Appeal recognized that this statute abrogated the common law which previously prohibited the enforcement of oral contracts.
In theory, oral contracts are just as enforceable as written contracts in Florida. However, there are several exceptions to the enforceability of oral contracts. Florida Statute Section 725.01 provides exceptions for contracts involving:
If an agreement falls under one of these categories, it is not enforceable unless it is in writing, and is not subject to the usual 4-year statute of limitations for breach of contract actions. A party can lose its claim for breach of an oral agreement before the action accrues, which would preclude the party’s ability to seek legal redress for the other party’s breach.
Florida Statutes Section 672.201(1) requires a contract for the sale of goods priced at $500 or more to be in writing to be enforceable. Contracts that are excluded from the Uniform Commercial Code’s definition of "goods" do not have to be in writing, but should still be in writing if a party wants to avoid additional issues with enforcement and interpretation.
Requirements for Enforceability
For a verbal agreement to be enforceable in Florida, it must have clear terms that make it readily understood by both parties. It should address all relevant provisions of the agreement, such as price, subject matter and time of performance. An agreement will not be enforced as a contract unless all material issues are agreed upon. Parties to a verbal agreement must mutually consent to the deal. Both must have full knowledge of the essential facts and circumstances which underlie the agreement. Consent means more than simply saying that an agreement has been reached. People may agree in principle, but then be unwilling to reduce the agreement to writing, make payments or deliver possession of property. Where this is the case, courts may find that a mere agreement, but not a binding agreement, was reached. An oral contract must involve consideration to be enforceable. Consideration may be something tangible, like money, services, labor or new or different terms in an existing contract. Courts may find that consideration is lacking if an oral contract does not include consideration. Without it, a verbal agreement would not be enforceable by the court even though the parties intended to enter into a binding agreement.
Exceptions to Enforceability
There are several exceptions to the rule of enforceability for verbal agreements. One major limitation is the Statute of Frauds. Verbal agreements to do the following are not enforceable:
The Statute of Frauds requires that these types of contracts either be in writing or be performed within one year. To understand this better, you should understand what a contract is. A contract is an agreement that can be enforced by the court. Nevertheless, if the law states that a certain agreement cannot be enforced by the court, then there is no contract. Florida Statutes § 672.201 (2016) provides as follows: (1) Except as otherwise provided in this section, and in addition to the requirements imposed by any other applicable rules of law, a contract for the sale of goods for the price of $500 or more is not enforceable by way of action, suit, or defense unless there is some writing sufficient to indicate that a contract has been made between the parties and signed by the party against whom enforcement is sought or by his or her authorized agent. (2) Between merchants, if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection (1) against such party unless written notice of objection to its contents is given within 10 days after it is received. (3) A contract which does not satisfy the requirements of subsection (1), but which is valid in other respects is enforceable: (a) If the party against whom enforcement is sought admits in his or her pleading, evidence, or otherwise in the action that a contract was made for sale of goods, including a quantity term, the contract is enforceable against him or her even though there is no writing sufficient to indicate that a contract has been made; (b) If goods are to be specially manufactured for the buyer, and they are not suitable for sale to others in the ordinary course of the seller’s business and they are not otherwise manufactured in the ordinary course of the seller’s business, and the goods are not a stock item, but are made pursuant to the buyer’s order and not yet delivered, the contract is enforceable if: 1. The buyer, before the completion of the goods, has made a payment on the price; or 2. The goods are being specially manufactured for the buyer and the seller has either made a substantial beginning of their manufacture or commitments for their procurement; or 3. The party against whom enforcement is sought admits in his or her pleading, in his or her testimony, or otherwise in the action that the goods were specially manufactured; (c) If the goods are either of the following: 1. Part of a single shipment, even though the payment is in installments; or 2. A recognized "output" or "requirements" contractual obligation, even though it is not the kind of "output" or "requirements" contemplated by the Uniform Commercial Code. This can lead to some level of uncertainty about the enforceability of an oral contract. If the contract signed is not sufficient to indicate a contract was made between the parties and signed by the party from whom enforcement is sought or by their authorized agent, then the Florida Statutes § 672.201 prevents enforcement of the verbal agreement.
Difficulties With Oral Contracts
As much as they are discouraged, verbal agreements continue to be common. Even the most carefully documented transactions can be undone by a verbal agreement. Under standard real estate contracts, for example, the contract governs. An amended contract modifies its predecessor, and a subsequent written contract modifies its predecessor. Unless the previous agreement is void, you are not entitled to the benefit of that agreement if you signed a later agreement that does not mention the previous agreement. So for example, if you signed an offer for $300,000 and then signed a contract for $325,000 without mention of the $300,000 offer, the parties can perform under the $325,000 contract with no liability for damages for breach of the $300,000 offer. This is because to be binding, a contract must be clear enough for its terms to be enforced. This is also why it is important to have a well drafted contract.
Because verbal agreements, or oral contracts as they are commonly referred to, can alter the terms of a written contract, parties frequently disagree about whether an oral contract was made, what the terms were, and whether the contract was breached. Verbal agreements do not have to meet any particular legal requirements; however , in order to be enforceable a verbal contract must be supported by consideration (something of value) just like a written contract. It must also be possible to determine the terms of the agreement from the circumstances.
In order to prove breach of a verbal contract, a party must establish its existence and the terms of the contract. Florida Courts have recognized several theoretical hurdles for alleged oral contracts:
· Ambiguity – In the absence of clear and unambiguous terms, an oral contract may be invalid as too vague to be enforceable.
· Lack of a writing – A verbal contract may be unenforceable if it should have been in writing under the statute of frauds.
· Credibility – The oral testimony of a party claiming a verbal contract may lack credibility when relied upon by itself.
Often, the person claiming a verbal contract will have difficulty establishing its terms and convincing the Court that the alleged contract existed. It is easy to state that a verbal contract was breached; however, it is another challenge to establish the terms of the alleged agreement. A verbal contract will often lack clarity and contradict other actions of the party alleging its existence.
If you are trying to enforce the terms of an alleged verbal contract you may have challenges establishing the terms or even proving that the contract existed at all. You will likely need to discuss your case with an attorney that regularly handles real estate matters.
Practical Steps to Protect Oral Agreements
In general, the wiser course of action is to assert one’s legal rights in writing. Indeed, some of the most common disputes arise from parties to an oral agreement who later question the terms of the agreement. So long as a verbal agreement does not fall within a recognized exception to Florida’s statute of frauds, it is strong advisable to avoid disputes by reducing the verbal agreement to writing.
Of course, when dealing with a disagreement related to a verbal agreement after the fact, it may not be possible for a party to avoid litigation. For that reason, when entering a verbal agreement, a party should consider the following:
• Keeping Written Records. Keep a written record of conversations including the date and time of all important discussions. Emails, letters, texts, notes, draft versions, etc. related to the agreement are useful to present as evidence in Court or Litigation.
• Have a Witness. If working with a friend, relative, or professional, such as an accountant, have that person witness the deal. Have them write down contemporaneous notes of the conversation and confirm their recollection in writing.
• Confirm Verbal Agreements in Writing. If possible, make notes of the agreement after every important conversation, and send an email confirming those terms to the other side. This "confirming" email can bolster your argument that a binding contract exists in the event of a later dispute.
• Review the Agreement with a Professional. An attorney who focuses his or her practice on the subject area can analyze the verbal agreement and verify it is enforceable if needed later.
Examples and Case Studies
To illustrate whether a verbal agreement is binding in the state of Florida, we will look at two hypothetical situations. In the first, a residential tenant and landlord enter into a verbal agreement for a one-year lease. The landlord later tries to void the contract because they think it will be more profitable for them as a short-term let. The tenant maintains that a one-year contract was entered into, and they expect compensation to be paid for the termination of their agreement. The agreement is enforceable under Florida law as it falls within the statute of frauds as an agreement to be carried out within a year. Additionally, because it is a lease, which is covered by the Residential Landslord and Tenant Act (Florida Statutes Title VI) , the agreement is valid and enforceable.
Example 2 is very different. A person calls their mechanic to ask if they have a specific part in stock, and if they would sell it to them for USD50. They agree on that price, but when the customer arrives at the shop, the mechanic denies that an agreement was made. He maintains that the part would cost $100. The mechanic cannot assert that the agreement has not been made even without written documentation. This is an enforceable oral contract, which falls within the minority of those that are enforceable in the state of Florida. A mechanic cannot insist that a written agreement had to be created for this agreement. That would contradict Florida’s statute of frauds laws.