Are Verbal Contracts or "Handshake Agreements" Valid?

Every valid, enforceable contract has three key components: (1) An offer, (2) an acceptance of that offer, and (3) consideration, i.e., a benefit which must be bargained for between the parties. The benefit can be money, a promise to do something or a promise to refrain from doing something. When two parties discuss entering into a contract, most people picture a large stack of paper with all the specifics and details hammered out, the attorneys are in the room and the parties are there to sign that paperwork, which is the physical embodiment of their months of long, drawn out negotiations.

While that might look like a very common example of contract negotiations and formation, a more simple instance might look like this:

Person 1: “Would you mow my lawn on Saturday for $20?”

Person 2: “Sure.”

Once Person 2 accepts that offer, the contract is formed. No lawyers, no paperwork, no physical writing that memorializes the agreement between the parties. In that moment, there is a valid enforceable contract. So, to respond to the question raised in this blog post . . . yes, verbal contracts or “handshake agreements” are entirely valid. However, there are certain contracts that must be in writing in order to be considered valid and enforceable in a court of law.

The New York General Obligations Law § 5-701, (or “Statute of Frauds” in other states) is a law that specifies the contracts that must be in writing. Some of these contracts include the following:

Any contract that by its terms cannot be performed within one year from the date the contract is formed
A contract which includes a promise to answer for the debt of another person (e.g., a parent co-signing for their child’s student loans)
A contract made in consideration of marriage (e.g., pre-nuptial and post-nuptial agreements)
A contract involving a subsequent or new promise to pay a debt that was discharged in bankruptcy
A contract to pay compensation for services conducted to negotiate a loan, the purchase or lease of real estate or the purchase or sale of a business . . ., etc.

Despite this list, there are still many other contracts that are made verbally between two parties. Even though most of these verbal agreements are valid, they still cause issues when the terms of the contract are breached.

Without a written agreement, courts must rely on the testimony and actions of the parties to the contract in order to determine whether a contract existed. This can turn into a he said/she said battle with often disastrous results. The difficulty in enforcing verbal contracts is often enough to cause most people to put their agreements in writing.

So, besides agreements with little impact, like agreeing to mow a neighbor’s lawn for $20, most contracts should be in writing. All the conversations, agreements, terms, details and ideas between the parties are best conveyed in a formalized written agreement that can be cited, reviewed and referred to throughout the contractual relationship. When it comes to entering into contracts, it is always best to get it in writing.

Disclaimer: This blog post and similar posts are not to be considered as providing legal advice. The discussion here is meant for educational and informational purposes only and shall not create an attorney-client relationship with the readers of this content.