It's widely understood that when we sign a contract, we are legally obligated to fulfill the terms and conditions outlined within it, regardless of whether we take action or refrain from doing so.
However, what is less commonly known is that a contract doesn't always have to be in writing to be enforceable; it can also be formed verbally through spoken agreements.
Verbal contracts, though often overlooked in favour of written agreements, play a significant role in everyday transactions and legal dealings. In Ontario, as in many other jurisdictions, verbal contracts can be legally binding and enforceable under specific conditions.
| In this article, JuriGo will explain when verbal contracts are legally binding in Ontario! |
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What Is a Verbal Contract?
A verbal contract, also known as an oral contract, is an agreement made between two or more parties where the terms are communicated and agreed upon through spoken words rather than being documented in writing.
This type of contract is built on the mutual understanding, trust, and intentions of the parties involved, with the expectation that each party will fulfill their obligations as discussed, thereby creating a legally binding relationship.
While verbal contracts may seem less formal compared to written agreements, they are not without legal weight. In fact, under Ontario law, verbal contracts can still be valid and enforceable, provided that certain conditions are met.
What Are the Essential Elements of a Verbal Contract?
For a verbal contract to be enforceable in Ontario, it must satisfy several essential criteria. These elements are the foundation of any contract whether verbal or written.
1. Offer and acceptance
The formation of a contract begins with an offer, which is a proposal made by one party to another indicating a willingness to enter into a binding agreement. The offer must be clear and unambiguous, outlining the terms under which the offeror is prepared to be bound.
Acceptance, on the other hand, occurs when the party to whom the offer is made agrees to the terms. This acceptance must be communicated to the offeror for the contract to be valid. In the context of a verbal contract, both the offer and acceptance are typically conveyed through spoken words.
2. Consideration
Consideration is a crucial element in forming a legally binding contract, including verbal agreements. It refers to the exchange of something of value between the parties involved in the contract. This exchange can take various forms, such as money, goods, services, or even a promise to perform a certain action or to refrain from acting in a particular manner.
The concept of consideration ensures that each party is providing something of value in return for what they receive, creating a mutual obligation. Without consideration, a verbal agreement may fail to meet the legal requirements of a binding contract, as it would lack the necessary element of reciprocity.
In other words, for a verbal contract to be enforceable, there must be a clear exchange of value between the parties, demonstrating that both sides have a stake in the agreement and are committed to fulfilling their obligations.
3. Intention to create legal relations
For a verbal contract to be legally enforceable, both parties involved must have a clear intention to create a binding legal relationship. This intention isn't always explicitly stated, instead, it is often inferred from the circumstances in which the agreement is made.
For example, if two friends casually agree that one will lend the other a book, this wouldn't typically be considered a contract because there's no intention to be legally bound, it's just a friendly promise.
On the other hand, if two business partners verbally agree to sell and purchase goods, the situation is different. In a business context, the assumption is usually that both parties intend to enter into a binding contract, as the agreement involves a formal exchange of value and obligations.
4. Legality of purpose
A contract, whether verbal or written, must be for a lawful purpose in order to be enforceable. This means that the agreement must adhere to the laws and regulations governing the subject matter of the contract. If a contract involves illegal activities or aims to achieve unlawful objectives, it will not be upheld by the courts.
For example, consider a scenario where two parties enter into a verbal agreement in which one party agrees to pay the other to commit a criminal act, such as smuggling contraband across borders. Even if both parties fully agree to the terms and exchange promises, this contract will be deemed void and unenforceable because it is based on illegal activities.
This principle serves to uphold the rule of law and ensure that legal agreements are used to promote lawful and ethical behaviour. Contracts that attempt to bypass legal constraints or engage in unlawful activities are inherently flawed and will not receive protection or enforcement from the courts.
5. Capacity to contract
For a contract to be legally binding, both parties involved must have the legal capacity to enter into the agreement. Legal capacity refers to the ability of individuals to understand and agree to the terms and conditions of the contract in a meaningful way. This concept ensures that all parties are competent and fully capable of engaging in contractual obligations.
| Aspect of legal capacity | Explanation |
|---|---|
| Mental competence | Both parties must be of sound mind when entering into the contract. This means they should be able to understand the nature and consequences of the agreement. If a person is under the influence of drugs or alcohol to the extent that they cannot grasp the terms of the contract or their obligations under it, they may lack the necessary mental capacity. For example, if someone signs a contract while heavily intoxicated, the contract may be challenged on the grounds that the person was not fully aware of what they were agreeing to. |
| Legal age | In Ontario, parties to a contract must be of legal age, typically 18 years old. Contracts involving minors, individuals under 18, are subject to special rules. However, there are notable exceptions. Contracts for essential goods or services, such as necessities, may be enforceable. Generally, contracts with minors are voidable at their discretion, meaning a minor can choose to affirm or cancel the agreement. For example, a 17-year-old who enters into a contract to buy a car can typically cancel the contract without legal penalties, as they are not yet of legal age to fully bind themselves. |
| Mental incapacity | Individuals with certain mental disabilities or incapacity may also lack the capacity to contract. If a person is declared legally incompetent or unable to understand the nature of their actions due to a mental condition, contracts they enter into may be considered void or voidable. For example, if someone with a severe mental illness signs a contract while experiencing an episode that impairs their understanding, the contract may not be enforceable. |
The principle of legal capacity is essential to ensuring that contracts are entered into voluntarily and with a full understanding of their implications. Contracts made by individuals who lack legal capacity are often deemed invalid or subject to cancellation, reflecting the importance of mental and legal competency in upholding the fairness and integrity of contractual agreements.
6. Certainty of terms
For a contract to be enforceable, its terms must be clear and specific. This means that all terms and obligations must be well-defined so that each party understands what is expected. If the terms are vague or ambiguous, the contract may be deemed unenforceable because the courts cannot impose obligations that the parties did not clearly agree upon.
For example, if two parties to a verbal contract agree to "complete the project soon" without specifying a deadline, the lack of clarity makes it difficult for a court to determine if the contract has been breached or what each party's responsibilities are.
The Risks of Verbal Contracts
Although verbal contracts can be enforceable under certain conditions, they carry significant risks that make them less preferable compared to written agreements. These risks primarily arise from the absence of a clear, tangible record of the agreed-upon terms.
- Lack of clarity: Verbal contracts often suffer from ambiguity due to the absence of a written record. This can lead to misunderstandings or differing recollections of the agreed terms, which may result in disputes between the parties.
Without a concrete document to refer to, resolving these disputes can become a lengthy and costly process, as the court must rely on limited evidence to reconstruct the agreement.
- Different interpretations Even when both parties generally agree on the terms, individual interpretations of specific clauses or obligations can vary. Written contracts mitigate this issue by providing a clear and precise record of the terms, which helps prevent disagreements over the contract’s meaning.
In contrast, verbal contracts can lead to subjective interpretations, increasing the risk of conflict and legal disputes.
- Lack of evidence Demonstrating the existence and specifics of a verbal contract can be challenging, especially in the absence of witnesses or supporting documents. The lack of physical evidence makes it difficult for a party to prove their claims in court, which can result in an unfavourable ruling if the evidence is insufficient to substantiate the agreement.
In Ontario, certain types of contracts must be in writing to be legally enforceable, as mandated by the Statute of Frauds. This legal doctrine requires written documentation for specific agreements, particularly those involving substantial amounts of money or property, to prevent fraud and misunderstandings.
When Are Verbal Contracts Appropriate?
While verbal contracts come with inherent risks, they can be suitable and effective in certain scenarios where the stakes are relatively low, or the context supports informal agreements. These situations often involve transactions or agreements where the parties have an established relationship or where the complexity of the terms is minimal.
- Small and personal transactions: Verbal contracts are often appropriate for minor, low-value transactions where the cost of drafting a formal written agreement would outweigh the benefits. For example, purchasing a used item from a friend, such as a piece of furniture or a household appliance, can typically be handled with a simple verbal agreement.
In these cases, the amount of money involved is usually small, and the risk of misunderstanding is relatively low.
- Short-term or informal arrangements: In many informal, short-term situations, a verbal agreement may be sufficient. This includes everyday arrangements such as hiring a babysitter for a weekend or engaging someone to mow the lawn once.
These agreements typically involve straightforward terms and minimal financial risk, making a formal written contract unnecessary.
- Trusted relationships:When the parties involved have a strong, long-standing relationship based on mutual trust and understanding, a verbal contract can be appropriate. For instance, business partners who have worked together for years and have a well-established rapport might use verbal agreements for routine matters.
However, even in these cases, if the agreement involves significant obligations or substantial risks, it is advisable to document the terms in writing to avoid potential disputes.
In summary, while verbal contracts can be practical and sufficient in certain contexts, they are best suited for low-risk, straightforward situations. For more complex or high-value agreements, having a written contract remains the best practice to ensure clarity and enforceability.
How to Prove a Verbal Contract in Court?
While verbal contracts can be legally binding, they are often more challenging to enforce than written contracts. The absence of a written record makes it difficult to prove the terms of the agreement and the parties' intentions. However, Ontario courts have consistently upheld verbal agreements when there is sufficient evidence to support their existence and terms.
When a dispute arises over a verbal contract, the burden of proof lies with the party seeking to enforce the agreement. This can be a daunting task, as the court must rely on the evidence presented to determine the contract's terms and whether both parties intended to be bound by them.
Evidence that may be used to prove a verbal contract includes:
| Evidence | Explanation |
|---|---|
| Witness testimonies | Testimonies from individuals who were present when the verbal contract was made can be crucial. These witnesses can provide details about what was agreed upon, including the specific terms and intentions of the parties involved. Their accounts can help establish the contract's existence and the agreement's nature. |
| Actions and conduct | The actions and behaviour of the parties after the verbal agreement can offer significant evidence. For instance, if one party begins to perform their obligations under the agreement, such as delivering goods or providing services, it can suggest that a contract was indeed formed. Conversely, if one party takes steps consistent with fulfilling their end of the deal, this can support the claim that a verbal contract was in place. |
| Correspondence | Written communications like emails, text messages, or letters that refer to or discuss the verbal agreement can be valuable evidence. These communications can clarify the terms discussed and show that the parties acknowledged the contract. Such correspondence can help substantiate the agreement's existence and specifics. |
| Documents | Although the contract itself may be verbal, related documents can support the claim. Examples include invoices, receipts, or handwritten notes that relate to the verbal agreement. These documents can provide evidence of the terms or transactions that took place in connection with the verbal contract. |
Each of these forms of evidence can play a role in demonstrating that a verbal contract was made and outlining its terms, especially when direct written proof is lacking.
The Role of the Courts in Enforcing Verbal Contracts
Ontario courts play a crucial role in enforcing oral contracts, especially during litigation. Their primary objective is to assess whether all essential elements of the contract are present, relying on the evidence provided by the parties.
When evaluating a verbal contract, the courts consider several factors, including:
- The intention: In enforcing verbal contracts, courts in Ontario emphasize the intention of the parties to create a legally binding agreement. This focus on intent allows the courts to uphold agreements even when they are not documented in writing, provided there is sufficient evidence to support the claim that both parties intended to be bound by the contract.
- The conduct of the parties: The actions taken by each party following the agreement can indicate their understanding of the contract and their intention to be bound by its terms.
- The relationship between the parties: The nature of the relationship between the parties, such as a business relationship or a casual friendship, can influence the court's determination of whether a binding contract exists.
- The specificity of the agreement: The more precise and detailed the terms of the agreement are, the more likely the courts are to enforce it. Specific terms, such as exact obligations, timelines, and conditions, help ensure that the contract is clear and unambiguous, making it easier for the court determines if the terms have been met and enforce the agreement effectively.
Based on the evidence presented by the parties and the factors outlined above, the court will determine whether a valid contract existed between the parties. If so, the court will establish the obligations each party must fulfill under the contract and enforce compliance accordingly.
JuriGo helps you find a lawyer for any issues related to verbal contracts!
Verbal contracts in Ontario can be legally valid and enforceable if they meet the essential elements required for any contract. However, proving the existence and terms of a verbal agreement presents significant challenges, primarily due to the absence of a written record. This can make it difficult to resolve disputes and establish clarity regarding the contract's terms.
In cases where issues related to verbal contracts arise, consulting a lawyer is crucial. A lawyer can provide invaluable assistance by navigating the complexities of verbal agreements, which often involve challenges such as proving the existence and terms of the contract without a written record.
Lawyers assist in gathering and presenting evidence, including witness testimonies and communications, to support your case. Additionally, they can represent you in disputes through negotiation, mediation, or litigation, ensuring your interests are protected and working towards a favourable outcome!
JuriGo is a simple, fast and free way to find a lawyer! All you have to do is fill in our request form and tell us about your situation.
Following your request, we will quickly put you in touch with a lawyer near you. There is no obligation on your part!