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Are verbal agreements legally binding?

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Real estate and construction, Notarial services, Civil and commercial litigation

Boo! This Halloween, it may be a scary thing to try to collect money you’re owed, when you only made verbal agreement.

Rejean from Granby telephoned our offices to discuss the following problem:

“My brother-in-law, Martin, has made me very angry. Last Halloween, we were at a costume party together. He was dressed as a vampire. I was dressed as Wonder Woman – don’t ask!  Martin said that he needed money fast. He offered to sell me a vacant lot in Cowansville for $50,000.00. I did some checking and the land has a market value of maybe $25,000.00. He said he knew that but what he was proposing is that 10 months later, at the end of August 2018, he would buy the land back from me for $60,000.00. In this way, I would be giving him a $50,000.00 loan for about 10 months and earning 20% interest on my money. As a guarantee of my $50,000.00 loan, I would have my name on the title of the land worth about $25,000.00.

I asked him if we could put all of this in writing. He said that he couldn’t and that if his wife knew that, at some point, he was going to get the land back, she would make a big stink about it during the divorce. On the other hand, once his divorce was final, he could buy the land back without a problem. “Besides,” he said, “you and me are buddies, and you know that you can trust me.”

So we signed a deed of purchase at the notary and he got his $50,000.00. After we left the notary’s office, in the car, he said “Thanks,” and “Don’t let me forget that when I buy the land back from you next year, I also have to reimburse to you the welcome tax you have to pay.”

At the beginning of August, I called him up and I asked him: “So, when are we going to go to the notary so you can take back the land and pay me the $60,000.00?”

Then he said: “What the hell are you talking about? You bought that land, it’s yours. Don’t blame me if you paid too much for it. And, by the way, that sister of yours is causing me nothing but trouble, even after the divorce. So maybe you shouldn’t call me anymore.” Then, he hung up and I haven’t spoken to him since.

Can I sue my brother-in-law?”

While Rejean could attempt to sue his brother-in-law, he will run up against two considerable problems of evidence in trying to prove the verbal agreement he made with Martin. These rules of evidence are contained in sections 2862 and 2863 of the Civil Code of Quebec.

Rejean is, in essence, alleging that he and his brother-in-law made an agreement to resell the land to Martin at the end of August 2018, for $60,000.00. Section 2862 of the Civil Code of Quebec provides that, where the value in dispute exceeds $1,500.00, proof of a contract may not be made between the parties by testimony.

This rule has two principal exceptions. First, testimony may be used to prove a contract against a person who makes the contract in the ordinary course of business of an enterprise. That exception does not apply to the agreement between Rejean and Martin.

The second exception applies where there is some sort of commencement of proof. A commencement of proof would include some sort of a written document from Martin, some sort of admission that he made, or some sort of real evidence, to the extent that the commencement of proof renders plausible the alleged contract. So if, for example, Martin had sent an email or a text to confirm what Rejean is saying or wrote something that seems to confirm what Rejean is saying, then Rejean would be allowed to testify in court as to the verbal contract. Otherwise, Rejean’s testimony would not be admissible.

The second rule, contained in section 2863 of the Civil Code of Quebec, is that proof by testimony is not admissible between the parties to contradict or vary the terms of a written contract. In essence, Rejean would be trying to prove that the contract that he and Martin signed at the notary to sell the property was not a purchase but in fact part of a loan guaranteed by the transfer of title. Attempting to prove such an agreement would directly vary the terms of the written contract. Doing so would be even more complicated because it is not just a contract but a notarial deed, which is even more difficult to contradict. Nevertheless, the same kind of exception, to allow verbal testimony where there is a commencement of proof, applies. So, again, if Martin wrote something or sent a text or an email that made what Rejean alleges plausible, then Rejean would be allowed to testify to try to contradict the written agreement. Otherwise, Rejean’s testimony would be inadmissible.

In the face of the written contract, signed before a notary, and in the face of Martin’s denials of the verbal agreement that Rejean alleges, it would be very difficult and perhaps impossible for Rejean to successfully sue to force Martin to respect the verbal agreement or to get his money. In this case, the lack of a written agreement or other document, that Rejean requested but Martin refused, may mean that Rejean is out of luck and stuck with a property that he won’t be able to sell for more than half of what he paid. This is the perfect example of an adage that some lawyers repeat frequently: “A verbal agreement is not worth the paper it is not written on!”

 

Me Franco Tamburro, Attorney-at-Law

Alepin Gauthier Avocats Inc.

Are verbal agreements legally binding?
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