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When will a Verbal Agreement be Binding?

It is often difficult to enforce a verbal agreement, because each party usually has a different recollection of what was said and agreed.

This is why it is always preferable to put any agreement in writing.

So how do the Courts determine whether an alleged verbal agreement is legally binding?

Legal principles

1.  The parties must manifest an intention to create legal relations. This requires an objective assessment of the state of affairs between the parties.  The parties’ subjective states of mind (ie what they intended) are not relevant.

2.  A binding agreement is made when a reasonable person would believe, based on the parties’ words and behaviour, that they intended to contract. In most cases this will involve determining whether there was an offer by one party (the offeror) to be bound on certain terms, and an unqualified acceptance of that offer communicated by the other party to the offeror.

3.  Any conversation relied upon must be proved to the reasonable satisfaction of the Court, meaning that the Court must feel an actual persuasion of the occurrence or existence of the conversation. This may involve serious difficulties of proof in the absence of reliable contemporaneous records or other satisfactory corroboration.

4.  The Court will take into account the seriousness of the allegations of fact, the inherent likelihood or unlikelihood of an alleged event, and the gravity of the consequences if the alleged facts are proved.

5.  The Court will not be persuaded by inexact proofs, indefinite testimony or indirect inferences.

6.  The Court will consider the commercial context, the parties’ previous dealings, and the purpose of the transaction.

7.  A contract may be inferred by the acts and conduct of the parties in the circumstances as well as, or in the absence of, specific words of promise. The key question is whether the conduct of the parties, including what is said and what is not said, and including the evident commercial aims and expectations of the parties, reveals a tacit understanding or agreement, that the parties mutually intended to be legally bound to the essential elements of the contract.

Please contact me if you require legal advice on the enforceability of a verbal agreement.

Greg Carter Litigation Lawyer Perth

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