As many other legal questions, when you are thinking, “Is a verbal agreement binding?” – the short answer is: It depends. Also, it depends on what the verbal agreement is for, because some things can only be contracted for in writing “to prevent the possibility of enforcing unfounded, fraudulent claims”… enter the Statute of Frauds.
Statute of Frauds
In Pennsylvania, like many other states, verbal agreements can be legally binding depending on the situation. When looking into this question it is important to understand the concept of the statute of frauds. The statute of frauds is the principle of contract law that applies to the following types of contracts:
- Contracts for the sale of real estate or any interest in real estate
- Contracts that cannot be performed within one year from the date they were made
- Contracts for the sale of goods for a price of $500 or more
- Contracts in consideration of marriage (premarital agreements)
If you are interested in seeing the specific rules that apply to the formal requirements for the statute of frauds in Pennsylvania, take a look at Title 13, Chapter 22 § 2201. You will find that the contracts that are in these categories must be in writing and signed by the party that the contract is being enforced against in order for it to be legally enforceable.
Put simply, if the agreement is for something that takes more than a year to perform, for goods that cost more than $500, or for a piece of real estate, it should be in writing, clearly describe the item to be sold, and signed by the person that is expected to perform–or better yet, by both people. Otherwise, it may not be enforceable under the statute of frauds.
What makes a contract legally enforceable?
In general there are a few key elements to make a contract legally enforceable.
- Offer: One party must make a clear and definite proposal to another party. This offer must express the willingness to enter into a contract on specific terms.
- Acceptance: The other party must unconditionally agree to the terms of the offer. Acceptance must be communicated to the offeror and must match the terms of the original offer.
- Consideration: There must be something of value exchanged between the parties. This can be money, goods, services, promises, or anything else of legal value. Consideration ensures that both parties are giving up something and receiving something in return.
- Legal Capacity: Both parties must have the legal capacity–or authority–to enter into a contract. This means they must be of legal age, mentally competent, and not under the influence of coercion or undue influence. Or, if they are signing for a company, they must be authorized to act on behalf of that company.
- Legal Purpose: The purpose of the contract must be lawful and not in violation of any laws or ordinances. Contracts with illegal objectives or that violate public policy are not enforceable.
- Mutual Consent: Both parties must freely and voluntarily agree to the terms of the contract. This means there should be no fraud, duress, misrepresentation, or mistake influencing the agreement.
- Certainty and Clarity: The terms of the contract must be clear and definite enough for a court to enforce them. Vague or ambiguous terms may render the contract or portions of the contract unenforceable. Any capitalized (or made up) terms should have definitions.
For a more in-depth look at how offer, counter offer, and acceptance play a role in creating a legally binding contract, read about a case where a Canadian Court decided that an emoji can constitute a contract.
Exceptions to the Statute of Frauds
While the statute of frauds is typically the first thing that you might consider when trying to decide if an agreement is enforceable, it is important to know that there are exceptions to the rule. If you are asking yourself, “Is a verbal agreement binding?”, consider if you have any of the following exceptions:
- Partial Performance: If one party has partially performed their obligations under the verbal agreement, courts may enforce the contract to the extent of the performance.
- Promissory Estoppel: If one party has reasonably relied on the verbal promise of another to their detriment, courts may enforce the promise to prevent injustice.
- Equitable Estoppel: If one party has made representations or acted in a way that would make it unfair or unjust to deny the existence of the verbal agreement, courts may enforce it.
- Admission in Court: If the party against whom enforcement is sought admits in court proceedings (depositions, pleadings, etc.) that the verbal agreement exists, courts may enforce it.
For real estate, there are additional exceptions. A court could enforce a verbal real estate agreement where “it appears that continuous and exclusive possession of the subject property was taken under the oral contract and improvements were made by the buyer which are not readily compensable in money.” Hostetter v. Hoover, 378 Pa. Super. 1, 8-9, 547 A.2d 1247, 1251 (1988). This follows along the line of the above exceptions because the person partially performed (took possession of the property), made improvements to the property (reasonably relied on the verbal agreement to their detriment), and now taking away the property would be unfair (equitable estoppel).
Contact us!
In order to really be sure if a verbal agreement is binding, or to help with drafting an enforceable agreement, consult with an attorney that deals with contract law. Kaminsky Law regularly handles contract disputes and would be happy to get you set up for a free consultation. We can help you understand the specific circumstances of your verbal agreement and its enforceability under the law.
Fill out a contact form or give us a call at 215-876-0800.
