Is a Verbal Agreement Legally Binding in the Philippines?

Yes. Verbal agreements are legally binding in the Philippines under the Civil Code, provided all essential elements of a contract are present. Under Article 1305 of the Civil Code, a contract is valid as long as there is a “meeting of minds between two persons binding oneself, with respect to the other, to give something or to render some service”. 

However, certain oral agreements cannot be enforced in court under the Statute of Frauds, and proving their existence may be difficult without evidence. This article explains when verbal agreements are valid, when they are unenforceable, and how Philippine courts treat oral contracts.

What Is a Verbal Agreement?

A verbal agreement is a contract made orally between or among parties, rather than in writing, in which they mutually agree on rights and obligations. It contains all the essential elements of a contract, consent, object, and cause or consideration.

Are Verbal Agreements Binding in the Philippines?

Yes, verbal agreements are binding in the Philippines. However, an important caveat is that verbal agreements merely bind the parties and not the whole world. 

One instance is when you promised to lend your friend some cash on the premise that he would repay you at the end of the month, after he had borrowed money from you.

Legal Basis of Verbal Agreements in the Philippines

Under the Civil Code, while there is no express mention of verbal or oral agreements, Article 1306 states that “contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy”. Here, the only limitations as to form is that the terms are not contrary to law, morals, good customs, public order, or public policy.

The Philippine Statute of Frauds Explained (Art. 1403)

Article 1403 on the other hand pertains to unenforceable contracts which means that while these agreements are valid, they cannot be enforced by the Courts. Paragraph 2 in particular lists down the instances when such agreements containing the specific objects to be provided below are unenforceable when not reduced into writing.

Why Verbal Agreements Are Harder to Enforce

Verbal agreements are harder to enforce because the only evidence available to prove their existence is testimony, which may contain misinterpretations. Sometimes, there are no other witnesses to the agreement aside from the parties themselves which affects its weight in court.

How Philippine Courts Treat Verbal Agreements

Philippine Courts are generally cautious in upholding the enforceability of verbal agreements in Court especially when the subject matters of such agreements fall under Art. 1403 (2) or the Statute of Frauds. Philippine Courts are reluctant in enforcing verbal agreements because testimonies of the parties to the agreement, or if possible, their witnesses, may tend to be self-serving.

However, in the case of Heirs of Godines v. Demaymay (2021), the Court upheld the enforceability of the verbal sale between the parties because there had already been partial execution in the form of partial payment and extended possession for a long period of time by the buyer.  

When Are Verbal Agreements NOT Enforceable? (Common Exceptions)

Verbal agreements, as stated under Article 1403(2), are binding between the parties. However some agreements with particular subject matters when not written cannot be enforced by the Court. These are:

1. Agreements that have yet to be performed within a year from its execution

2. A suretyship or an agreement where one promises to answer for the debt, default, or miscarriage of another person

3. An agreement made in consideration of marriage, other than a mutual promise to marry

4. An agreement for the sale of goods worth ₱500 or more, unless the buyer accepts part of the goods or pays part of the price

5. A lease agreement for a period of more than one year 

6. The sale of real property 

7. An agreement where one party ensures the creditworthiness of another

What this means is that if you have a verbal agreement that contains any of the above-listed subject matters, then the Court cannot compel the opposing party to fulfill their alleged obligations unless its terms are reduced into writing.

How to Prove a Verbal Agreement in Court 

While generally, the enforceability of verbal agreements are not upheld in Court, the terms and conditions of such may be proven in Court in the following manner:

Evidence for Verbal Agreements

In legal proceedings involving verbal agreements, it is frequently necessary to prove that one or both parties rely on the agreement. It would greatly help to have a witness, proof of a transaction, or any substantial documentation concerning the agreement. 

These documentations can be in the form of text messages or Facebook conversations. Other pieces of evidence can include receipts of a bank transfer or Gcash transfer in case of monetary subject matters.

How Courts Evaluate Evidence of Verbal Agreements

In evaluating evidence of verbal agreements, the court takes into consideration the ff.

1. Credibility

Credibility pertains to the quality of the testimony and his or her witness of being trustworthy.

2. Consistency

Consistency takes into consideration other pieces of evidence and whether they are in agreement with the testimony of the parties or witnesses to the verbal agreement. This is important to establish the credibility of the pieces of evidence of verbal agreements.

3. The Conduct of the Parties

As discussed in Heirs of Godines v. Demaymay (2021), the Court takes into consideration whether the parties have already fulfilled their obligations to the verbal agreement, either partially or fully. The Court can order the enforceability of such depending on how the parties acted pursuant to their alleged terms and conditions.

Do Verbal Agreements Hold Up in Court in the Philippines?

While verbal agreements are generally unenforceable in Court, it may still be proven to exist although difficult. As such, it helps if you have digital proof of such agreement. The Court may take them into consideration depending on the weight of your pieces of evidence.

Do note that whether verbal or written, agreements will be considered valid between the parties if it contains the following elements:

1. Offer and Acceptance

A party must make a reasonable and clear offer, and the other party must accept it for there to be a contract.

2. Consideration or exchange of something of value

Something of value has been given up in exchange for the contract. This can be in money, services, etc., and should be legal. 

3. Certainty and Mutual Consent

Both parties must agree and be aware of its terms which cannot be ambiguous or lacking in detail, and should clarify their responsibilities, the price to be paid, etc. 

4. Legal Capacity

Both parties shall be in a proper state of mind to comprehend the terms of the agreement–this also includes being at a legal age. Although there are case exemptions for minors, neither of the parties must be under the state of influence, coercion, or intimidation.  

5. Legal and Fair

The contract must comply with the law and with no one extorting or otherwise taking advantage of the other.

Practical Tips for Strengthening Your Claim

When entering into a verbal contract, always have a form of record somewhere, may it be a doodle on a napkin or a video or voice recording of your meet-up. In this manner, you have some sort of proof as to what terms and conditions you and the other party agreed to.

Examples of Verbal Agreements

To help you identify which verbal agreements may be entered into, here are some examples:

Enforceable Verbal Agreements

• Roxanne verbally agrees to sell a bicycle to Brie for ₱5,000

• Tina hires a tutor verbally to teach her son for one month

• Juan lends ₱200 without interest

• Taylor buys candy from the nearby sari-sari store

Unenforceable Verbal Agreements

• Drew sells to Gwenn his house and lot

• Martha agrees to have Levi lease her storefront for at least 5 years

Verbal Agreement vs Written Contract: Comparison Table

Aside from the form, verbal agreements and written contracts differ in the following manner:

How Digest PH Can Help You With Contracts and Claims in Court

Digest PH with its latest AI innovation can help you stay up-to-date with jurisprudence on interpreting the Civil Code provisions on contracts. Aside from this, the database also offers a wide-range of case collections to help you organize all your research needs.

Frequently-Asked Questions (FAQs)

What is the meaning of verbal agreement?

A verbal agreement is a contract made orally between or among parties, rather than in writing, in which they mutually agree on rights and obligations. It contains all the essential elements of a contract, consent, object, and cause or consideration.

Is verbal agreement valid in the Philippines?

Yes, the only issue with verbal agreements is that it may be challenging to establish their existence and their terms and conditions.

Do verbal agreements hold up in law?

Yes, verbal agreements hold up under the law as to the parties involved.

What is an example of a verbal agreement?

An example of a verbal agreement is when a friend of yours decides to ask you for financial help but you did not reduce the due date of such loan into writing.

Conclusion

Entering into a verbal agreement is inevitable, especially since not everyone knows how to draft a contract. However, it is always advisable to put everything in writing because it is in your best interest to have a contract and avoid legal disputes.

Readers who want to explore how courts interpret contract disputes may consult Digest PH’s collection of Civil Code provisions and case digests on contractual obligations.