Incorrect. The statement is not hearsay and therefore is admissible.

Craig’s statement about what Bill said out-of-court seems to fit the definition of hearsay. The Rules of Evidence, however, recognize that a statement that has intrinsic legal significance and that is offered to prove the legal circumstances surrounding an act is admissible as a "verbal act" and is not hearsay.

In this case, the question before the court is why Bill paid Audrey the $100. The need for the admission of such testimony is substantial because the reason for Bill’s action is ambiguous. Bill could have given Audrey the money for any number of reasons other than repaying his debt to her. Without Bill’s statement about his intent at the time the act was performed, the significance of Bill’s action would be lost. Bill’s action is therefore considered a "verbal act" and is admissible.

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