Is a Verbal Contract Legal in Texas?

By Patrick Gleeson, Ph. D., Registered Investment Adv

Texas allows verbal contracts with some exceptions. Enforcing a verbal contract, however, is difficult. Legal advisors recommend against them.

Texas, along with other states, allows verbal or oral contracts with some exceptions. Just because a verbal contract is legal doesn't mean it's provable, however. If you can't prove what is in a verbal contract and that it was truly and fully agreed to by the parties, then it's not enforceable. An unenforceable contract is little better than no contract at all.

Verbal Contracts Prohibited by Texas Law

R. Scott Alagood, a partner in Texas law firm Alagood, Cartwright Burke PC, notes on the firm's website that certain verbal contracts are prohibited by law in Texas. These include:

• An executor's promise to pay the debts of a decedent

• Marriage agreements. Prenuptial agreements are also generally prohibited

• Real estate agreements that are either contracts for sale, lease agreements for longer than one year, or related to real estate commissions

• Any agreement for a performance not completed within one year

• Medical care agreements, promises or warranties other than those made by licensed pharmacists.

• Loans from certain financial institutions

• Contracts for $500 or more for the sale of goods

• Agreements related to a lawsuit

Verbal Contracts That Are Generally Enforceable

Under Texas law, a verbal contract is generally enforceable if the following elements can be proven:

1) There is an offer made

2) The parties are agreed and in strict compliance with the terms of the offer

3) There is a "meeting of the minds" with respect both to the agreement and all its essential terms

4) There is a communication of acceptance by each party to the terms of the agreement.

Uses and Limitations of Verbal Contracts

Texas is one of the few states where verbal contracts have the same statute of limitations as written contracts. For both written and oral contracts you have four years from the time of a breach of contract to bring a lawsuit for contract violation.

As an interim agreement, verbal agreements can work well, allowing a work process to begin immediately while contract details are still being worked out. Verbal contracts are common in the film industry, for example, where a composer or film editor may be brought into an ongoing project with a tight deadline. Once the composer's or editor's agent reaches an oral agreement with the film company -- usually with a short phone call -- work begins while the film company's lawyers prepare the written agreement that may take weeks for completion and signature by all parties.

Nevertheless, verbal contracts are of limited value because the existence of the contract -- and especially of its terms -- are difficult to prove in court. In most cases, for the opposing arguments to consist of anything more than "he said...she said," there has to be corroboration by witnesses. As time goes on, memories become inexact or witnesses are no longer available. For these reasons, a Nolo article,"Ten Tips for Making Solid Business Agreements and Contracts," makes its number one tip "Get it in writing."