1. Introduction
1.1. In business, property, family arrangements and commercial transactions, many people still rely on the phrase: “We shook hands on it.” Unfortunately, a handshake can become an expensive lesson.
1.2. Verbal agreements often arise between people who trust one another. At the time, recording the arrangement in writing may seem unnecessary.
1.3. However, where money, property, deadlines or legal obligations are involved, memory can become unreliable. Relationships change, circumstances change and, when a dispute arises, parties often have very different recollections of what was agreed.
1.4. The major difficulty with verbal agreements is proving their existence, validity, terms and conditions.
2. Are Verbal Agreements Legally Binding?
2.1. A contract may be defined as an agreement entered into with the intention of creating legally enforceable rights and obligations.
2.2. Accordingly, for a contract to exist, there must be a meeting of the minds between the parties and a clear intention to create legal obligations.
2.3. It has long been recognised that verbal agreements can give rise to legally enforceable contracts.
2.4. The difficulty, however, is proving exactly what was agreed. One party may remember a promise, whilst the other remembers a casual discussion. One party may believe a payment was waived, whilst the other insists that it was merely postponed. The dispute then becomes one of evidence.
3. Challenges Associated with Verbal Agreements
3.1. Unlike written agreements, verbal agreements do not provide a contemporaneous written record of the parties’ intentions.
3.2. Verbal agreements can lead to misunderstandings and differing interpretations of the parties’ obligations, often resulting in disputes.
3.3. In legal disputes, the party with the clearest documentary evidence will often be in a stronger position. Emails, WhatsApp messages, text messages, invoices, purchase orders and written confirmations can all assist in proving the existence and terms of an agreement. A properly drafted written agreement significantly mitigates the burden of having to locate and produce such evidence by providing a clear record of the parties’ rights and obligations from the outset.
4. Agreements That Must Be in Writing
4.1. Despite the validity of verbal agreements, certain agreements are required by legislation to be reduced to writing in order to be valid and enforceable.
4.2. Some common examples include the following:
4.2.1. Section 2(1) of the Alienation of Land Act 68 of 1981 provides that a sale of land is of no force or effect unless it is contained in a written agreement signed by the parties or their duly authorised representatives. Accordingly, a verbal agreement for the sale of immovable property will generally be unenforceable.
4.2.2. Section 6 of the General Law Amendment Act 50 of 1956 provides that a contract of suretyship is not valid unless its terms are embodied in a written document signed by or on behalf of the surety. A verbal promise to stand surety for another person’s obligations will therefore generally not be enforceable.
4.2.3. The Wills Act 7 of 1953 prescribes a number of formal requirements for the validity of a will, including that it must be in writing, signed by the testator and properly witnessed. A verbal instruction regarding the distribution of a person’s estate will generally not constitute a valid will.
4.3. These examples demonstrate that, whilst South African law generally recognises verbal agreements, there are important exceptions where legislation requires compliance with specific formalities. Failure to comply with those formalities may render the agreement invalid and unenforceable.
5. Conclusion
5.1. In South African law, verbal agreements are generally legally binding. However, they often create uncertainty and increase the likelihood of disputes between the parties.
5.2. Goodwill and trust are valuable, but they are not substitutes for legal certainty. Relationships change, circumstances change and memories fade.
5.3. A properly drafted written agreement clarifies expectations, records the parties’ obligations and significantly reduces the scope for future disputes.
5.4. Before entering into any agreement with legal or financial consequences, parties should consider reducing the arrangement to writing and obtaining appropriate legal advice.
5.5. At Lanham-Love Inc., we regularly advise clients on the drafting, review and enforcement of commercial agreements. Should you require assistance in relation to a proposed transaction or existing agreement, we would be pleased to assist.
By: Gavin Smith
