Guide to Verbal Agreements in Australia: Are they Legally Binding & Enforceable?

Introduction

Verbal agreements are a common part of everyday life and business in Australia, but many people are unsure whether these spoken arrangements carry legal weight. Understanding when a verbal agreement is binding and enforceable is essential, as relying solely on words can lead to uncertainty or disputes if things go wrong.

This guide explains the legal status of verbal agreements under Australian law, highlighting the key elements required for a contract to be valid and the practical challenges involved in proving and enforcing such agreements.

Interactive Tool: See If Your Verbal Agreement Is Legally Enforceable

What Are Verbal Agreements?

A verbal agreement, also known as an oral contract, is a legally enforceable arrangement formed through spoken communication between two or more parties. These agreements are often established in casual environments and are based on mutual understanding, without the need for formal written documentation or a handshake.

Such agreements can be created through various forms of communication, including:

• Face-to-face conversations
• Telephone calls
• Video conferencing

Even without a written contract, it is crucial that all parties clearly understand and agree on the fundamental terms of the verbal agreement. This ensures clarity and mutual consent regarding the obligations of each party involved in the arrangement.

Key Elements for a Binding Verbal Agreement

Offer & Acceptance

To create a binding verbal contract, both of the following must occur:

• Clear offer made by one party, setting out the proposed terms
• Unambiguous acceptance of those exact terms by the other party

Acceptance can be expressed in different ways:

• Spoken words such as “I agree” or “it’s a deal”
• Conduct that demonstrates performance of the agreed duties, signalling a meeting of the minds

Consideration

Consideration is the value each party agrees to exchange, turning a mere promise into a legal obligation.

Without this exchange, the agreement is generally unenforceable. This “price” motivates the deal and distinguishes a contract from a gratuitous promise.

The value exchanged can take many forms:

• Goods or property, like a piece of jewellery
• Performance of a service
• Promise to act or refrain from acting in a certain way

The consideration provided by each side does not have to be equal; it is sufficient that something of value moves from both parties.

Intention to Create Legal Relations

All parties must intend to enter a legally binding relationship, separating commercial agreements from casual arrangements.

In business settings, this intention is usually presumed. By contrast, agreements formed in a social context—for example, between friends over coffee—rarely attract legal enforceability.

Certainty of Terms

The terms must be clear, specific, and complete so that each party’s obligations are identifiable.

If crucial details—such as price, quantity, or delivery date—remain uncertain, a court may find no binding contract was formed, stressing the need for precise articulation at the time of agreement.

Legal Capacity & Competency

Every party must possess legal capacity to contract, which raises specific issues in cases like contracts and minors; otherwise, the agreement may be void.

Those commonly lacking capacity include:

• Minors (typically under 18 years)
• Individuals with a mental disability impairing understanding
• Persons so intoxicated that judgment is impaired
• Bankrupt individuals unable to enter certain financial commitments

Proving a Verbal Agreement in Court

The Burden of Proof

When a dispute over a verbal agreement reaches court, the responsibility for proving its existence rests on the person making the claim.

This principle—known as the burden of proof—requires the individual asserting the contract to supply evidence convincing the court that an agreement was actually formed.

Consequently, they must show, to the court’s satisfaction, that a conversation establishing the contract took place and that its terms were clear.

Evidence to Support a Verbal Agreement

Because a verbal agreement lacks a formal written document, gathering supporting evidence becomes crucial for enforcement.

Indeed, proving the existence and terms of a verbal contract often depends on a combination of direct and circumstantial evidence.

Courts will therefore examine various forms of proof to clarify what was agreed upon.

Several types of evidence can be used to substantiate your claim:

• Witness testimony – Individuals present when the agreement was made can recount the negotiations and the terms that were settled. Their testimony helps confirm the details of the verbal arrangement.
• Electronic communications – Although the primary agreement was spoken, later emails, text messages, or other written correspondence that discuss or confirm the terms can serve as powerful evidence.
• Conduct of the parties – Actions taken after the agreement, such as making payments or delivering goods or services, can demonstrate a mutual understanding of the contract’s terms.
• Supporting documentation – Invoices, purchase orders, phone logs, bills, or even contemporaneous handwritten notes can further corroborate the verbal terms.

When Verbal Agreements Are Not Legally Binding

Agreements That Must Be in Writing

While many verbal agreements can be valid, Australian law mandates that certain contracts must be in writing to be enforceable.

Relying on a spoken arrangement for these transactions is insufficient, and a court will not uphold the agreement without proper documentation.

These legally required written agreements include:

• Contracts involving land: Any agreement for the sale, transfer, mortgage, or lease of land or property, including matters governed by strata law, must be in writing.
• Credit and financial agreements: Consumer credit contracts and other specific financial arrangements are required to be documented.
• Guarantees: A promise to guarantee the debt or obligations of another person generally needs to be written to be valid.
• Agreements lasting over one year: Contracts that cannot be fully performed within one year from the date they are made must be in writing.
• Other specific transactions: Certain other agreements also require written form, such as deeds, assignments of copyright, payment orders, and the sale of a motor vehicle from a licensed trader.

The Impact of Vague Terms or Lack of Intent

A verbal agreement can be non-binding if its terms are too uncertain or if the parties never intended to create legal consequences.

Two common reasons a verbal agreement may fail are:

• Vague or incomplete terms: Without clear obligations, courts have nothing concrete to enforce.
• Lack of intention to create legal relations: Social or casual promises rarely demonstrate an expectation of legal consequences.

For a contract to be valid, its terms must be clear and complete, leaving no room for ambiguity about each party’s obligations.

If key details are vague—such as a promise to “talk payment later”—a court may determine that no binding contract exists.

Courts are also less likely to enforce verbal agreements between friends or family unless there is clear evidence that both parties intended legal consequences.

Case Study: Douglas v Mikhael

The Challenge of Substantiating a Verbal Agreement

The judgment in Douglas v Mikhael [2023] NSWSC 979 illustrates the significant challenges involved in enforcing verbal contracts.
In this case, the plaintiff maintained that two separate verbal agreements entitled him to business profits, yet he was unable to prove their existence.

His claim rested solely on conversations he said occurred in 1999 and 2015.

The court emphasised that the burden of proof rests with the party asserting a verbal contract.
Without a written record or credible witnesses, the plaintiff could not substantiate his claims, underscoring how difficult it is to enforce a verbal agreement when accounts conflict.

Key Legal Principles for Enforcing Verbal Contracts

In the Douglas v Mikhael decision, Justice Richmond outlined several important legal principles that guide courts when assessing verbal contracts.
Key considerations include:

• Burden of Proof: The responsibility to prove the existence of a verbal contract lies with the person making the claim. They must provide sufficient evidence to convince the court that an agreement was formed.
• Proof of Conversation: It is essential to demonstrate to the court’s reasonable satisfaction that the specific conversation establishing the contract actually occurred.
• Binding Nature and Intent: The court must be persuaded that the agreement was capable of forming a binding contract and that both parties mutually intended for it to be legally enforceable.
• History of the Relationship: The previous relationship between the parties is taken into account, as this context can provide insight into their intentions and the nature of their agreement.
• Conduct of the Parties: The behaviour of the parties, both before and after the alleged verbal contract was made, is considered relevant evidence. Their actions can indicate whether they believed a binding agreement was in place.

Documenting the Verbal Agreement After the Fact

After reaching a verbal agreement, it is crucial to create a written record of the terms discussed. Sending a follow-up email or text message offers tangible evidence of the arrangement.

This simple step also prevents misunderstandings by ensuring both parties share the same understanding of the deal.

When drafting your follow-up communication, clearly recap the essential terms of the verbal agreement. Ask the other party to reply with a brief confirmation—such as “Confirmed” or “Agreed”—to acknowledge acceptance.

Your summary should include:

• A recap of basic terms: Clearly state what was agreed upon and note the date of your conversation.
• Project scope and milestones: Outline the specific deliverables, key deadlines, and payment details.

The Importance of Witnesses & Record Keeping

Having witnesses present when a verbal agreement is made can significantly strengthen its validity. A witness can provide an independent account of the terms discussed and each party’s intentions if a dispute arises.

Beyond witnesses, maintaining thorough records is essential for protecting your interests.

If the deal breaks down, these documents can help prove the existence and terms of the contract. Important records to keep include:

• Witness statements: Written notes or testimony from anyone who was present.
• Electronic communications: Preserve all emails, text messages, and phone logs referencing the agreement.
• Proof of performance: Keep invoices, payment receipts, or delivery dockets that show the agreement was acted on.
• Contemporaneous notes: Jot down the terms in a diary or notebook immediately after the discussion to create supporting evidence.

Conclusion

While verbal agreements can be legally binding in Australia, proving their existence and specific terms without written documentation presents significant challenges. Understanding the essential elements required for a valid contract and the potential difficulties in enforcement is crucial for anyone relying on spoken arrangements.

If you are involved in a dispute over a verbal agreement or need assistance formalising your arrangements to ensure clarity and enforceability, contact the commercial and business law lawyers at PBL Law Group. Our expert team provides trusted guidance on contract law to help you protect your interests.

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