Is a Verbal Business Agreement Enforceable in Texas?

The rule: oral agreements are contracts in Texas

Texas does not require a contract to be written to be enforceable. If two businesses agree on what will be done, by whom, for how much and when, and each side gives or promises something, a contract exists whether it was signed, spoken or sealed with a handshake. Courts enforce oral agreements regularly, and the four elements of a breach of contract claim are the same for an oral contract as for a written one. Those elements are covered in what you have to prove in a Texas breach of contract case.

The exceptions are statutory. If the agreement falls into one of the categories the Legislature has said must be in writing, an oral version is unenforceable no matter how clear the proof of what was said.

Which agreements must be in writing in Texas?

Business and Commerce Code section 26.01 lists the agreements that are not enforceable unless the promise, or a memorandum of it, is in writing and signed by the person to be charged. For business disputes the categories that come up most are:

• An agreement that cannot be performed within one year from the date it was made. A two-year consulting engagement, a three-year supply commitment, a multi-year lease of equipment. The test is whether performance within a year was possible under the terms, not whether it was likely.
• A contract for the sale of real estate. Any agreement to buy or sell land or buildings.
• A lease of real estate for longer than one year.
• A promise to answer for the debt of another person. A personal guaranty of a company's obligations is the common example.
• A promise by an executor or administrator to pay an estate's debts personally, an agreement made in consideration of marriage, and a promise to pay a commission for the sale of an oil, gas or mineral interest.

Section 26.02 adds a separate rule for loans: a loan agreement in which the amount exceeds $50,000 is not enforceable unless it is in writing and signed by the party to be bound. Courts read "loan agreement" broadly, so an oral promise to extend, renew or modify a large loan runs into this section.

The exceptions that save an oral deal

Falling into a statute of frauds category is not always fatal. Texas recognizes several ways around the writing requirement.

A memorandum signed by the other side. The statute requires a writing, not a formal contract. Emails, letters, invoices, a signed proposal or a text message can supply the memorandum if together they identify the parties, the subject and the essential terms and carry the other party's signature. How electronic messages meet the signature requirement is covered in whether emails and text messages can form a binding contract in Texas.

Partial performance. Texas courts enforce an oral agreement within the statute when one party has performed acts that are unequivocally referable to the agreement, that would be a fraud on that party if the agreement were not enforced, and that cannot be explained by anything other than the agreement. Paying the price and taking possession of land, or delivering goods that were accepted, are the classic cases.

The merchant's confirmation. For goods, section 2.201(b) provides that between merchants, a written confirmation of an oral deal sent within a reasonable time binds the recipient unless it objects in writing within 10 days of receipt. A supplier who confirms a phone order by email and hears nothing back has likely satisfied the statute.

Goods accepted or paid for. Section 2.201(c) also makes an oral sales contract enforceable to the extent goods were received and accepted or payment was made and accepted.

Promissory estoppel. Where one party promised to sign a written agreement that would have satisfied the statute and the other relied on that promise, Texas courts have allowed recovery of reliance damages even though the underlying oral contract is unenforceable. This is a narrow doctrine and depends on the specific promise to put the deal in writing.

The real problem: proving what was said

Most verbal agreements that fail in court fail on proof, not on the statute of frauds. Without a document, the claimant must establish the terms through testimony, which the other side will contradict, and through the surrounding evidence: who did what afterward, what was paid, what was said in later emails or texts, and whether the conduct of both sides is consistent with the deal the claimant describes.

Evidence that carries an oral contract case includes payments and invoices that match the claimed terms, calendar entries and notes made at the time, messages that refer back to the deal, witnesses to the conversation, and the parties' course of dealing on earlier transactions. A court will also ask whether the terms were definite enough to enforce. "We agreed to work something out" is not a contract; "$8,000 a month for twelve months of bookkeeping starting in March" is.

Example

Suppose the owner of a Dallas landscaping company agrees on a call with a property manager to maintain six commercial properties for a flat monthly fee, starting next month and running "until either of us wants out." The company begins work and is paid for four months. The manager then switches vendors and refuses to pay the fifth month's invoice for work already done. The statute of frauds does not apply: the agreement could be performed within a year because either party could end it at any time, and it does not involve real estate, a loan or goods. The four months of invoices and payments prove the fee and the scope. The company has an enforceable oral contract for the unpaid month. What it does not have, because the arrangement was terminable at will, is a claim for future months.

When the statute bars the contract, what remains

If an oral agreement is unenforceable under section 26.01 and no exception applies, the party who performed is not always left with nothing. Quantum meruit allows recovery of the reasonable value of services or materials the other side knowingly accepted. Unjust enrichment and money had and received can recover payments the other side kept without a basis. These claims measure recovery by value conferred, not by the bargain price, and they are explained in getting paid without a signed contract in Texas.

What this means for how you do business

A verbal agreement is a real agreement, and the other side's "we never signed anything" is not a defense unless the deal is in a statute of frauds category. But the cost of enforcing an oral contract is higher at every stage, because the first fight is about what the terms were. A one-paragraph email confirming the deal, sent the same day, usually ends that fight before it starts and often satisfies the statute of frauds on its own. For deals that are already in dispute, the first step is collecting every message, payment and record that shows the agreement in operation, before memories and inboxes change.

Tina Wysk represents Dallas businesses on both sides of contract disputes, including agreements that were never reduced to a signed document.