The Impact of Verbal Exchanges on Written Contracts

When entering into a contract for any purpose, the safest legal method is for the agreement to be in writing and signed by the parties. However, this is not to say that a verbal contract cannot be enforced by the Court. According to Australian law it is possible for a verbal contract to be enforceable in its own right and even to alter a written contact. 

Elements of a Written Contract

When entering into a valid written contract it is imperative that the three basic components of a contractual obligation be met; 

1. Offer; this is indicative of what one party will be providing to the other party 
2. Acceptance; the receiving party has indicated that they agree to the offer being proposed 
3. Consideration; this is a value that is being exchanged between the parties. Most commonly it is a monetary amount 

If these three elements are met, and the terms of the agreement are put into a writing that both parties have reviewed and signed, a contract comes into being. As a result, the parties are then legally responsible for upholding their respective duties under the agreement.  

Elements of a Verbal Contract 

While it can be more difficult to prove the existence of a verbal contract there are elements, that if proven, will lean toward the Court finding that an enforceable contract exists between the parties. These elements are more rigorous than those of a written contract. This is to ensure that the verbal agreement was understood by both parties and valid in its creation. These elements include; 

1. Burden of Proof; the burden of proving that a verbal contract was entered into is on the party who is alleging the contract came into existence. This party will need to provide sufficient evidence to meet this burden 
2. Proof of the Conversation; the party with the burden of proving that the contract was verbally entered into must be able to show that there was a conversation about the contract terms and responsibilities that each party participated in 
3. Binding Intent; the Court must determine and find that the conversation that the parties were involved in was one in which the parties both intended to be bound by. This is also known as sharing a mutual intent to enter into the agreement. 
4. History of the Relationship Between the Parties; if the parties tend to do the majority of their business verbally and have been doing so for a reasonable amount of time, it is more likely the Court will find that the agreement in question is no different than those the parties have entered into in the past 
5. Party Conduct; The last element the Court will review is the manner in which the parties behaved toward each other after the agreement was supposedly entered into. For example, if both parties immediately began to take the necessary steps toward completing the contract, it is more likely the Court will find that the parties’ conduct represented their intentions to enter into a binding agreement.

Can a Written Contract Be Altered by a Verbal Agreement? 

The best way to ensure that a written contract is not altered, or alterable by extraneous factors, is to include in the contract that there are no outside agreements, in writing or verbally, that alter or affect the terms of the written agreement. 

However, if the parties do not include a statement such as this in the written agreement, then it is possible a verbal exchange, or extraneous evidence, or another writing, could alter the terms of the agreement. Here are some examples where an outside piece of evidence could change or clarify the terms in a contract; 

• An email that clarifies or changes a term and shows the parties intent to alter the written agreement 
• An action that is taken in furtherance of the contract that is not included in the written agreement, but is necessary for the agreement to be fulfilled 
• A conversation that is shown to alter or change a term of the agreement and is then relied upon by one or both parties 
• Outside information regarding the cost or availability of items contained in the contract that will affect the purchase price or the delivery date of an agreed upon item 

If a contract is a mix of written terms and verbal agreements, and the parties disagree as to the effect of the verbal changes to the terms in writing, the parties will most likely find themselves in need of the Court’s assistance to determine the final outcome of the contract terms. In this case the Court will look at both sets of elements (described above) to determine the intentions of the parties within the written contract and, if the verbal agreements are necessary and consistent with the writing, to allow for the contract to be completed by the parties as intended. 

In an effort to avoid such misunderstandings, or a lack of agreement as to the terms of a contract, it is always prudent to make sure that all the contract terms and variables are included in the writing. If the contract must refer to something outside of its written boundaries, then it is wise to note the additional documents or conversations that will impact the written agreement in the contractual language. 

In the event that you find yourself in need of assistance, please contact the law offices of Owen Hodge Lawyers. At Owen Hodge, we are always happy to assist clients in understanding the full ramifications of any and all of your legal needs. Please feel free to call us at your earliest convenience to schedule a consultation at 1800 770 780.