Why a Written Contract Is Better Than a Verbal Agreement

Source: Jesse White

(Ed. Note. This is an article written by an American for an American audience, but it is very useful in the South African context).

Contracts govern nearly every aspect of day-to-day life in ways one may not even realize. From accepting the Terms and Conditions of an app on our smartphones to haggling over prices at a neighborhood yard sale, contracts are a fundamental part of modern life.

Strictly speaking, a contract is an enforceable agreement where willing parties with capacity agree to specific terms in exchange for something. It contains a promise to do or give something in return for a valuable benefit, known as consideration.

This post will describe the elements of an enforceable contract and then look at why a written contract is better than a verbal agreement.

What Makes a Contract a Contract?


The below elements make an agreement an enforceable contract.

  • An agreement between two or more people or entities

The first rule of any contract is relatively straightforward: It requires an agreement between two or more people, entities (such as private businesses, government units, non-profits), or legally recognized organizations. The law requires a person be at least 18 years old and mentally competent to enter into a contract.

  • Consideration

Perhaps the most critical element that determines whether an agreement is an enforceable contract is whether or not consideration exists. Consideration means that each party must exchange something of value. Without consideration, the exchange amounts to a gift between the parties, not a contract.

For example, imagine Frank promises his next-door neighbor Nancy that he will give her his riding lawn mower when he moves. If he gives it to someone else, Nancy has no contract (and therefore no legal recourse) because she did not give anything in exchange for the promise of getting the mower. But if Nancy offered Frank $50 for the obligation to sell her the mower, and Frank accepted the money but gave the mower to someone else, Nancy could take action against Frank for breaking their contract — even if it was not in writing.

Consideration is not limited to money. In large business transactions, consideration can include stock, other securities, real estate, inventory, or even debt.

Additionally, consideration can occur in the past, present, or future and still be valid. But for consideration to be valid, it has to have real value. If Nancy had offered Frank a penny for the promise to sell her the riding mower, it likely wouldn’t rise to the level of actual consideration.

Whether consideration is valid can be subjective and is usually determined on a case-by-case basis according to the contents of the alleged contract.

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