Lawyers will always advise clients to get agreements in writing and for very good reasons. The dominant reason for this approach is that written agreements that are properly drafted provide a simple method by which to evidence the terms and intentions of the parties. The cost of preparing a properly drafted agreement would be minimal compared to the costs and impact on parties going to Court. We should however not forget that verbal agreements, while being more difficult to evidence, can be just as binding as written agreements in the eyes of the law.

A timely reminder of the enforceability of verbal agreements is the recent decision on the 27 May 2015 in the NSW Supreme Court case of Yulema Pty Ltd & Anor v Simmons & Anor [2015] NSWSC 640. The Court ordered the defendants pay Yulema the sum of $347,632.67 plus interest and costs.

The Court found that an enforceable agreement had arisen by:

  • a side agreement had been entered into between the parties during negotiations on 25 October 2009 (the “Side Agreement”);
  • the Side Agreement dealt with reimbursement for the repayment of debt by operation of an oral collateral agreement;
  • the terms of the Side Agreement was sufficiently defined and agreed and was witnessed by a number of .

Tips to follow

  1. Verbal agreements are enforceable when sufficient evidence exists to support the terms and intentions of the parties.
  2. It is still best to avoid oral agreements and obtain properly drafted agreements to reduce disputes, avoid costly delays and litigation.
  3. Where you find it is necessary to rely on oral agreement, try to ensure:
    • terms are clearly defined including what happens upon a default;
    • diary or file note made at the time to record the terms;
    • presence of suitable witnesses at the time of making the agreement to provide corroboration of the terms and intentions of the parties.

It should be noted that although oral agreements are enforceable at law, statutory requirements require certain contracts to be in writing to be enforceable. Some example are:

  • Sale of land;
  • Domestic construction contracts and building works;
  • Credit agreements;
  • Consumer leases;
  • Unsolicited consumer agreements.

If you would like to know more about this decision, you can read the full text of the decision at Austlii

Vantage Law provides the above commentary for the purpose of general information only and should not be relied upon as legal advice. You should contact us in relation to any legal advice you may need which is particular to your situation and circumstances.