Why the handshake still counts
A verbal agreement is a contract made through spoken words or conduct rather than a signed document. Two business owners who settle a deal over coffee, a supplier who accepts an order by phone, a founder who promises a new employee a role and a start date before any paperwork exists: in each case the law treats the exchange as capable of being a binding contract.
Australian contract law does not require most agreements to be in writing. The formalities matter far less than whether the parties actually reached a deal. This article walks through the mechanism: what has to exist for a verbal agreement to be enforceable, the situations where the law insists on a document, how texts and emails fit in, and what happens when a dispute forces a court to reconstruct a conversation nobody wrote down. Understanding the mechanism matters most at the moment things go wrong, because that is when the difference between a binding deal and an unenforceable promise becomes expensive.
When words alone create a contract
For a verbal agreement to be legally binding, the same elements must exist as for a written contract. There is no separate "verbal contract law"; there is simply contract law, and the absence of a document is only one factor among many. A court will ask whether there was:
- Offer: one party proposed a deal on identifiable terms
- Acceptance: the other party agreed to those terms without introducing new ones
- Consideration: each side gave something of value, usually money for goods or services
- Intention to be legally bound: both parties meant the deal to carry legal consequences
- Certainty: the essential terms are clear enough to be enforced
If all five are present, a court can find a binding contract even though nothing was signed. Take a straightforward example: a landscaper quotes you $150 a fortnight to maintain your property, you say yes and agree on a start date. Offer, acceptance and consideration are obvious. If a payment dispute later arises, the enforceability of that arrangement will turn on the last two elements: whether both of you objectively intended to be bound, and whether the terms are sufficiently certain.
Intention is judged objectively
The High Court confirmed in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8 that the intention to create legal relations is assessed objectively, from all the surrounding circumstances, rather than by applying any fixed presumption about the type of relationship involved. What matters is how a reasonable person in the parties' position would have understood the exchange, not what one party now claims was secretly intended. That makes conduct and context decisive: paying invoices, delivering goods and referring to "the deal" all point towards an intention to be bound.
Certainty only fails when terms cannot be given meaning
Courts are reluctant to strike down a commercial agreement for uncertainty. If the words used can be given a workable meaning, the agreement will generally be enforced (Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429). Even a promise to "genuinely try to agree" on outstanding issues has been held sufficiently certain to bind the parties (United Group Rail Services Ltd v Rail Corporation NSW (2009) 74 NSWLR 618). An agreement will only fail for uncertainty when its terms are so vague that a court cannot tell what the parties promised, for example "I'll help you out with your business, we'll sort out payment later".
When the law insists on writing
Statute overrides the general rule for a small set of transactions. The consequence is serious: an agreement that fails the requirement is unenforceable, which means a court will not help you enforce it even if the deal was genuinely made and partly performed.
Land and property
In NSW, s 54A of the Conveyancing Act 1919 provides that no action may be brought on a contract for the sale or other disposition of land, or any interest in land, unless the agreement, or a memorandum or note of it, is in writing and signed by the party to be charged. Every other state and territory has an equivalent provision, so the rule applies across Australia. A verbal "we have a deal on the factory" will not support a claim for specific performance or damages.
Two qualifications are worth knowing. First, s 54A(2) preserves the equitable doctrine of part performance: if one party has substantially acted on the unwritten deal, for example by paying the price and taking possession, a court may still enforce it. Second, s 54A(4) makes clear that a land contract is not unenforceable merely because it was created electronically and electronically signed, so a properly executed digital contract is fine.
Consumer credit
A consumer credit contract under the National Credit Code, which is Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth), must be in the form of a written contract document signed by the debtor and the credit provider (s 14). A lender's verbal assurance that "we'll sort out a payment plan" does not create an enforceable credit contract. The written document also protects the consumer, because it is the benchmark against which obligations and disclosures are measured.
Guarantees
A guarantee of a credit contract must be in writing and signed by the guarantor, and it is unenforceable if it is not (s 55 of the National Credit Code). That is why directors, landlords and lenders always ask for signed personal guarantees rather than relying on a promise to "back" someone else's debt. Outside the Code, a guarantee can in principle be enforced even if made orally, which makes the signed document even more important as a matter of evidence, not just formality.
Texts, emails and electronic signatures
Digital messages can create binding agreements. Section 8(1) of the Electronic Transactions Act 1999 (Cth) provides that a transaction is not invalid merely because it took place wholly or partly by means of electronic communications, and the state and territory counterparts of the Act apply the same principle to state law. The writing and signature requirements of other laws can generally also be satisfied electronically.
So yes, a text message can be a legally binding contract. If a supplier messages you "Can deliver 100 units by Friday at the agreed rate, confirm if you want to go ahead" and you reply "Confirmed", the elements are all there: offer, acceptance, consideration, intention and certainty. The exchange is enforceable in the same way as a signed order form.
The practical implication cuts both ways:
- Casual replies can bind you: "sounds good", "that works" or a thumbs-up in response to a clear offer can lock you into a deal
- Negotiation language protects you: if you are not ready to be bound, say so explicitly with words like "subject to contract" or "pending written confirmation"
- Records become evidence: saved messages, screenshots and emails are the contemporaneous record a court will rely on if the deal turns sour
Proving a verbal agreement after the fact
The enforcement mechanism depends on evidence. The party asserting the contract carries the burden of proving it, on the civil standard of the balance of probabilities. Because intention is judged objectively, a court reconstructs the deal from everything the parties said and did, not from each side's later recollection.
Evidence that carries weight includes:
- Witnesses: people who heard the agreement being made
- Contemporaneous notes: a diary entry, an internal record or a follow-up email made at the time
- Documents consistent with the deal: invoices, delivery dockets, payment records and business correspondence
- Conduct: performance that only makes sense if the agreement existed, such as accepting deliveries or paying the agreed price
This is where the risk concentrates. In the absence of any record, a dispute about a verbal agreement often comes down to one person's word against another's, and a court must decide who is more credible. Even a valid contract can be effectively lost if there is no evidence of its terms. That is why the enforceability of a verbal agreement is frequently decided before any hearing: by the quality of the paper trail, or the lack of one.
Where the mechanism breaks down
Edge cases are common in verbal agreement disputes, and they are worth knowing before they cost you money.
Agreements left incomplete
If key terms are left for later, there may be no contract at all. A court will not fill gaps the parties deliberately left open. If price, scope or timing is genuinely unresolved, the safer view is that nothing binding exists yet, whatever the parties assumed.
Family and social settings
There is no automatic rule that agreements between friends or family are unenforceable, but the objective test in Ermogenous means context decides. A promise made at a family barbecue that you will "look after" a relative's business is far less likely to be treated as intended to create legal relations than a commercial arrangement between strangers, because a reasonable person would understand the settings differently.
Oral variations of written contracts
A written contract can generally be varied by a later oral agreement, but many contracts include a clause requiring variations to be in writing. Whether such a clause protects you depends on its wording and the circumstances of the later agreement. If you routinely change terms by conversation and the written contract says variations must be in writing, you are creating a gap between what you think you agreed and what you can enforce. A lawyer can assess whether your contract's variation clause actually holds.
How a lawyer helps at each stage
A practitioner adds the most value at three points in this mechanism. Before the deal, by drafting or reviewing the contract so that terms are certain, variations are controlled and the writing requirements above are satisfied. At the moment of dispute, by assessing whether the elements of a contract exist, which statutory requirements apply and what evidence is available, so you know whether enforcing the agreement is realistic before spending money on a claim. And in the dispute itself, by building the evidence trail, negotiating and, if needed, running the case.
The advice is often cheaper than the alternative. A short review of a contract or a one-off letter confirming a verbal arrangement costs a fraction of proving an oral deal in court, and it is usually far faster.
The written confirmation you send right after the deal
Every verbal agreement dispute has a single point where the outcome is effectively fixed: the minutes after the deal was struck, when a written confirmation could have been sent and was not. Courts decide these disputes on contemporaneous evidence, and the email you send while the relationship is still good is worth more than any witness's recollection years later. If a deal matters to your business, the cheapest protection available is to follow every important conversation with a short written summary and ask for confirmation in reply. If the deal is significant enough that a dispute would hurt, have a lawyer look at the contract before you rely on it, because at that point the cost of getting it wrong is measured in the deal itself, not the drafting fee.