You probably wouldn't agree to do a million dollars' worth of work with only a verbal agreement and a handshake. But what about smaller jobs? Do oral contracts carry any legal weight in Texas? Are they enforceable?
In fact, they are. There are some significant caveats, but verbal contracts that meet specific legal requirements can be binding in Texas. However, it is always better to have a contract in writing if you want to ensure that your interests are protected in the event that something doesn't go according to plan.
Under Texas law, four things must be present for a binding contract to exist, which applies to both written and oral contracts:
- An offer
- An acceptance of the offer
- A "meeting of the minds"
- Adequate consideration
In legal jargon, a "meeting of the minds" occurs when both parties have a mutual understanding of their benefits and obligations. "Consideration" indicates that each party must benefit from fulfilling their obligations, say by rendering some service in exchange for payment.
Verbal Contract Exceptions
Something you should keep in mind is that not just anything can be the subject of an oral contract. The Texas Statue of Frauds requires that certain kinds of agreements must be in writing. These include:
- Selling real estate, or commissions from such a sale
- Agreements that last for a year or more
- Selling goods valued at $500 or more
- Loans from banks or other financial institutions
- Medical agreements
- Marriage agreements
- Agreements regarding lawsuits
- Debt payments on behalf of someone who is deceased
As you may imagine, there are some significant risks that come with verbal contracts. Even if all four elements of a binding contract exist in the original agreement, it's simple for someone to change their story when disputes arise. If an oral contract case ever winds up in court, a judge will often look to secondary communications between parties to uncover the truth of the original agreement. The irony is that oral contracts are often only as secure as the writing that verifies them.
Generally speaking, written contracts are much more secure, as they can clearly contain all four contract elements presented in a verifiable way that can't be changed simply by saying something. They're safer and simpler to use, and businesses should do so as often as possible. However, verbal contracts are common in certain industries, which the law recognizes. Just because you've agreed to something verbally doesn't mean that you've given up your rights.