Business owners make deals every day. Some are carefully documented and reviewed by counsel. Others are reached quickly on the phone, in meetings, or over a meal. Verbal agreements feel efficient and personal, especially when parties trust each other or want to move fast. Texas law recognizes verbal agreements in certain circumstances, but that recognition comes with important limitations and practical risks that business owners often overlook.
Understanding when a verbal agreement is legally binding, when it is prohibited, and how courts treat these disputes can help you avoid costly misunderstandings and protect your business when conflicts arise.
What Is a Verbal Contract?
A verbal contract, sometimes called an oral agreement, is a contract formed through spoken words rather than a written document. Under Texas law, a contract does not have to be in writing to be valid. If an agreement includes all required elements of a valid contract, it can be enforceable regardless of whether it was memorialized on paper.
Those elements include an offer, acceptance of the offer, consideration given by each party to the contract, the capacity to enter into a contract, and legality. If one party makes a clear offer, the other accepts it, both sides exchange something of value, and the agreement involves lawful conduct between parties with legal capacity, a contract may be formed even if nothing is signed.
From a purely legal standpoint, Texas courts do not treat verbal agreements as inferior simply because they are unwritten. The problem is not formation. The problem is proof.
Is a Verbal Contract Legally Binding?
In many situations, yes. A verbal contract can be legally binding in Texas if it meets the basic requirements of contract formation discussed above and does not fall within a category that requires a written agreement by law.
That general rule often surprises business owners, especially those who assume that only signed contracts matter. Courts routinely hear cases involving oral agreements and, in some instances, enforce them. However, enforceability depends not only on whether a contract technically exists, but also on whether its terms can be proven with admissible evidence.
This is where verbal agreements become risky. Without a written document, each side may remember the terms differently. When disputes arise, courts are forced to sort through conflicting testimony, partial records, and circumstantial evidence to determine what the parties actually agreed upon.
When Are Verbal Contracts Not Permitted?
Texas law includes an important exception to the general rule that verbal agreements can be binding. That exception is the Statute of Frauds. The Statute of Frauds requires certain types of agreements to be in writing and signed by the parties to be enforceable.[1] In Texas, the Statute of Frauds is codified in the Texas Business and Commerce Code § 26.01.
Common examples of agreements that must be in writing include contracts for the sale of real estate, leases of real property for longer than one year, agreements that cannot be performed within one year, and contracts for the sale of goods valued at more than $500 under the Uniform Commercial Code.[2] Certain agreements involving commissions related to oil and gas interests must also be in writing, as do many family law related agreements such as trusts and wills.
If an agreement falls within the Statute of Frauds and is not written and signed, Texas courts will generally refuse to enforce it, even if both parties believed they had a deal. This can result in the loss of significant rights and expectations simply because the agreement was never reduced to writing.
Do Verbal Contracts Hold Up in Court?
They can but proving them is often difficult. Courts decide contract disputes based on evidence, not assumptions or fairness alone. With a written contract, the document itself serves as the primary evidence of the parties’ intent. With a verbal agreement, the court must rely on testimony, emails, invoices, conduct, and other indirect indicators to reconstruct the terms of the deal.
This creates several practical problems. Each party will naturally present their own version of what was agreed. Memories fade, conversations are misunderstood, and key details may never have been discussed explicitly. Judges and juries are then left to weigh credibility and make determinations based on incomplete and sometimes contradictory information – if a court cannot determine the terms based on the evidence, it may find that no agreement was ever reached, meaning there is not contract and therefore no enforcement.
Evidentiary rules can further complicate matters. Hearsay rules and doctrines limiting what testimony can be considered may exclude background information that one party believes is critical[3]. The result is uncertainty and risk that no business owner should accept lightly.
Texas courts have enforced oral agreements in some cases[4], including partnership disputes where conduct clearly demonstrated a shared business relationship. But those cases often involve extensive litigation, significant legal fees, and outcomes that could have been avoided with a written agreement from the start.
When Are Verbal Contracts Appropriate?
Verbal agreements may be appropriate in limited, low-risk situations. Routine transactions with minimal financial exposure, short-term arrangements, or simple agreements that can be easily performed and verified may not always require formal documentation.
For example, a short-term service arrangement with a known vendor, a minor change to an existing written contract that is later confirmed in writing, or an agreement that will be fully performed immediately may not justify extensive drafting. Even in those cases, following up with an email or written confirmation is a prudent step that helps preserve clarity.
As the value, complexity, or duration of an agreement increases, reliance on a purely verbal understanding becomes increasingly dangerous. Agreements involving ownership interests, long-term obligations, revenue sharing, exclusivity, or real property should always be documented carefully and reviewed by counsel.
The Real Risk of Relying on Verbal Agreements
The greatest risk of a verbal agreement is not that it will automatically be unenforceable. The real risk is that, if something goes wrong, you may spend significant time and money arguing over what the agreement was in the first place. Litigation over oral contracts often focuses less on performance and more on whether a deal even existed and what its terms were.
Even when a party ultimately prevails, the process can be costly and disruptive. Attorney fees, business distraction, and damaged relationships often outweigh whatever benefit was gained by moving quickly without documentation.
Why Written Agreements Still Matter
Written contracts provide clarity, predictability, and protection. They reduce the likelihood of disputes and make resolution easier if disagreements arise. A well-drafted agreement reflects the parties’ intent, allocates risk thoughtfully, and provides mechanisms for enforcement or exit.
At Roquemore Skierski PLLC, we regularly represent clients in disputes involving alleged verbal agreements. In many of those cases, the dispute could have been avoided entirely with a simple written contract prepared at the outset. We also help clients evaluate whether a verbal agreement may be enforceable and what evidence is needed to protect their position if litigation becomes necessary.
The Bottom Line
Verbal agreements can be legally binding in Texas, but that does not mean they are a good idea. Statutory exceptions, evidentiary challenges, and the unpredictability of litigation make reliance on oral contracts a risky approach for any serious business transaction.
Before entering into an agreement that matters to your business, it is wise to involve legal counsel and put the terms in writing. Doing so protects your interests, reduces uncertainty, and helps preserve valuable business relationships.
If you are dealing with a dispute involving a verbal agreement or want guidance on documenting your business arrangements properly, Roquemore Skierski PLLC can help. Call 972-325-6591 to discuss your situation and get clear, practical advice tailored to your business.
References
[1] https://statutes.capitol.texas.gov/docs/bc/htm/bc.26.htm
[2] https://statutes.capitol.texas.gov/Docs/BC/htm/BC.2.htm#2.201
[3] https://texasevidence.com/article-viii/rule-801/
[4] https://law.justia.com/cases/texas/fifth-court-of-appeals/2018/05-16-00584-cv.html?utm_source=chatgpt.com
