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Court decision finds verbal agreements can be binding

A recent ruling has confirmed spoken agreements can be legally enforced.

A recent decision from the Queensland Court of Appeals has determined that verbal agreements – those entered into by individuals without any supporting documentation – can be treated as legally binding.

The ruling follows a legal dispute between a veterinarian and his accountant. The veterinarian argued that, over the course of three phone calls and a meeting, the two had reached an agreement whereby the accountant would purchase $3.2 million worth of Wagyu cattle from the veterinarian.

This agreement covered a number of transactions, including a loan, and three annual payments of $500,000 to the veterinarian. Although the initial deal to purchase the cattle was verbal, these other transactions were documented.

What's more, the veterinarian never sought external legal or financial advice, leaving it to the accountant to ensure the deal was legally sound.

Following this agreement, the loan and other payments were finalised, but the sale of the cattle stalled. It was argued that although a verbal agreement had been reached, this deal was not legally binding, and therefore the veterinarian didn't need to transfer ownership of the herd.

In the initial case, the Judge ruled in favour of the veterinarian, finding that the conversations and meeting did constitute a legally binding agreement between the two parties.

The accountant appealed, focussing on whether the parties intended to enter into a legal contract and also whether they had been successful in doing so. The Appeal Judge agreed with the lower Court, confirming that the did constitute a binding legal agreement and that the parties intended to be contractually bound.

If you would like legal advice on drafting a commercial contract, make sure you contact a commercial lawyer.