Written by Mark Asfar
When people think of contracts, they typically think of the long, dense packages that they signed several times when they got a cell phone plan. However, not all contracts come printed on legal paper in tiny font. Contracts can also be made by verbal agreement, which most people think of as a ‘handshake deal.’ But in reality people actually make simple, though legally binding, verbal agreements all the time over the phone, or in person, without any kind of handshake or careful thought.
What is a Legally Enforceable Contract?
At the most basic level a contract is a verbal or written agreement between two parties that is legally enforceable, so long as it contains certain basic components and is not contrary to the law or the public interest. The required basic components are offer, acceptance, and consideration. Legal professionals study the intricacies of these components for years, but they essentially mean that Party A has to offer something like a service or a good, Party B has to accept the offer, and then Party B has to give something in return (typically a monetary amount). For example:
Party A says that they will give Party B a car. Party B accepts. This is not a legal contract, it is merely a statement.
Party A says they will give Party B their car in exchange for $5000. Party B accepts. This is a binding contract, and if Party B takes the car but does not pay the agreed upon amount they may be taken to court for enforcement.
Beyond these components the only other requirement for a contract is that it does not break the law or hurt the public interest. These are fairly intuitive problems. For example, if two parties form an agreement to import illegal goods into the country and one party backs out, the other party will not be able to get the courts to enforce the contract as it would result in an illegal end.
The most common, reasonable, and legally enforceable contracts come in the form of written agreements. These are typically the best option for contracting parties because they create a record that proves the existence of the agreement, explicitly outline the terms of the deal, and can set out provisions for what happens if the contract is breached or if an essential condition changes. You can read more about written contracts and why lawyers make them so long in another Momentum post.
What About Verbal Agreements?
Some legal systems have adopted laws and practises to encourage written agreements (for all the beneficial reasons previously discussed) and discourage purely verbal agreements. For example, our neighbour the United States has a Statute of Frauds that requires contracts be made in writing when they involve certain kinds of debts, values over $500, or services lasting longer than 1 year. However, the Ontario Statute of Frauds does not contain the same provisions, and instead only really requires written agreements for contracts involving the sale of land and debt guarantees. This means that outside of these select transactions a verbal agreement can create a binding contract.
Thus, in Ontario a verbal agreement will form a legally enforceable contract so long as it contains the required offer, acceptance, and consideration. In the past the key problem with asking a court to enforce a contract formed by verbal agreement was difficulty proving the existence and terms of the agreement. Legal disputes about a contract quickly became a he-said, she-said situation with decisions favouring the most believable or reasonable party. The advent of accessible smartphones and other technology in the modern era has overcome this problem. Customer service and sales representatives take notes about their conversations and account changes with customers. Some over-the-phone salespersons have even started to ask customers if they can record the part of the conversation where they agree to a contract and a terms of service. These short recordings can be used as proof of the contract and terms. If a salesperson asks a customer “have you read and do you agree with the terms on our website/brochure/email?” and the customer responds in the affirmative then the terms will become a part of the verbal agreement, even if the customer never really bothered to read them.
In short: yes verbal agreements will form legal contracts, and yes any recordings or terms you agree to can used to determine the existence and terms of that contract in court. Parties should exercise caution and read any and all terms before agreeing to them, even on the phone.
Special Protection for Consumers
If you are a consumer in Ontario who signed a contract for a personal good or service you have extra protection. Most consumers are not lawyers and do not have one on call. This can make them vulnerable to unfair contracts, scams, and lies. In order to prevent consumers from being exploited Ontario has the Consumer Protection Act, which allows consumers to get out of bad contracts or seek compensation. Some of the protections provided by the act are as follows:
- Cooling-Off Period: Consumers have 15 days to cancel a contract for a good or service bought from a door-to-door salesperson, a fitness or gym membership, a new condo, or a time share.
- Cancellation for Misrepresentation: A consumer can withdraw from a contract within one full year if a salesperson or a business provide fake identification, false claims about their product or service, or make impossible promises.
- Delivery Period: Any ordered products must be delivered within 30 days or the consumer can refuse and ask for a refund. Consumers cannot be charged for an item or service that they did not request.
These protections are monitored by Consumer Protection Ontario, which provides additional protection for specific products and situations. Consumers can file official complaints against businesses that act in a misleading or outright fraudulent manner, and find a publicly posted list of businesses that have received multiple complaints.
However, if you are representing a business (including your own small business) or dealing in a commercial transaction the Consumer Protection Act will not apply to you. That means that you can enter into a written or verbal contract for goods or services and be legally bound to that agreement as previously discussed. You should exercise due diligence by researching your agreement and possibly seeking legal counsel.
How Momentum Can Help
Do not hesitate to contact our team at Momentum if you are currently bound by a written or verbal agreement, or unsure about a specific contract. We can review your documents and agreements for a flat rate, and advise you about your legal position and options.