Enforcing Verbal Agreements in Business Contracts
A verbal agreement is just that. It is an agreement made verbally between two or more parties. Verbal agreements can be legally binding and enforceable in Singapore, if it can be proven that they were made. This article will explain:
When are Verbal Agreements or Contracts Legally Binding?
In theory, a verbal agreement/contract is just as binding and enforceable as a written one. To amount to a legally binding contract, a transaction needs to comprise:
- An offer;
- An acceptance of that offer; and
Consideration is the thing being bargained for. For example, if you are browsing around a farmers’ market and come across a vendor advertising their apples for sale for a dollar each, and you bought an apple for a dollar from the vendor, you have just entered into and performed a binding verbal contract.
The shop has offered to give you an apple in exchange for one dollar – this is the offer. You accepted the offer by giving the shop a dollar and taking an apple – this is the acceptance. The dollar that you have paid is the consideration. Therefore, this entire transaction amounts to a binding verbal contract.
When Should a Contract be in Writing?
Although verbal contracts are enforceable, it is usually advisable to put contracts in writing if the contract is about anything important. This is because if you cannot prove that a verbal contract was made, you cannot enforce it.
In a business environment, contracts should be in writing in almost every imaginable scenario. Doing this is good practice, particularly for business owners, as it increases the likelihood that your business transactions will take place as anticipated.
In fact, certain kinds of contracts are required by law to be in writing. An example of such a contract is a contract of employment. The Employment Act requires key employment terms to be provided to employees in writing within 14 days of the commencement of their employment. An employment agreement could technically be said to exist independently of these written terms. However, given this legal requirement, employers typically include these key terms in a written employment contract to be signed by their employees.
How To Enforce a Verbal Contract
If you have a verbal contract in which the other party fails to perform their obligations under the contract, you will need to enforce it. For example, if you had a verbal contract with a supplier to provide you with a certain amount of raw materials by a certain date and they do not do so, you will need to enforce the contract.
Here are the steps that you can take to do so if you are the party seeking to enforce the contract:
- First, write to the supplier, referring to the terms of your verbal agreement, and ask them why they have failed to perform the contract. You can also ask them what they intend to do to rectify the situation.
- Wait for the supplier to respond. Hopefully, their response will either implicitly or explicitly acknowledge the terms of the verbal contract that you have previously set out in your correspondence. You then have written evidence of your verbal contract that you can use as evidence to enforce the contract in court, if necessary. If it is clear from the supplier’s response or silence that they do not intend to perform the contract, you can consider taking legal action against the supplier.
If you are the other party who is disputing that a verbal contract exists, the burden of proving that a verbal contract exists will be on the claimant (i.e. the person taking legal action against you). The claimant will need to prove that a verbal agreement had actually been made.
You should avoid communicating with the claimant or responding at all to any correspondence claiming that a verbal agreement existed. Instead, you should engage a litigation lawyer and have them determine how best to respond to the claim, if at all.
How to Prove the Existence of a Verbal Contract
There are a limited number of ways in which a party can prove the existence of a verbal contract. The first and most straightforward way is for the other party to admit to its existence.
The second is to secure any written evidence of the verbal agreement. These could include the minutes of a meeting, an exchange of correspondence, or a subsequent transcription of the key terms of the agreement.
Another way would be to take an audio recording of the verbal agreement being made. Naturally, this is very rare. If the recording was made secretly, without one party’s knowledge, and the recording party was a company, the recording could likely still be used in court. However, the company would risk falling foul of the Personal Data Protection Act (PDPA) and being subject to regulatory sanctions. This is because, under the PDPA, it is illegal for companies to collect or use personal data without its owner’s consent.
A witness who was present at the scene when the verbal agreement was being made may also be called upon to testify as to what they heard or saw. This would occur only in the context of the matter being brought before the courts, where witnesses are being called as part of the proceedings.
Alternatively, a court may find that a verbal agreement existed by referring to the actions, or conduct, of the parties after the contract was made. If the parties behave as if there is a contract, and this is the most reasonable explanation for their actions, a court may find, on that basis, that they were acting as though a verbal contract had come into existence.
For example, a supplier verbally agreed to regularly supply certain amounts of cement to a customer. If the supplier starts making deliveries of the cement to the customer, a court may reasonably conclude that he did so pursuant to the verbal agreement.
As you can see, while verbal contracts are enforceable in Singapore, proving their existence using the strategies above are uncertain and adds an additional layer of difficulty to enforcing a simple contract. For this reason, in business settings, it is advisable to avoid relying on verbal agreements and to always insist on written agreements.
It is often economically beneficial to engage a commercial contract lawyer to draft a suite of template agreements that your business would regularly require to avoid these kinds of disputes arising. If a dispute about a verbal contract does arise and you decide to commence legal action, you can consider engaging a contractual disputes lawyer to advise and represent you in that dispute.
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