Key Takeaways

  • An oral contract is a legally enforceable agreement made through spoken words, not written documentation.
  • These agreements must meet the same elements as written contracts: offer, acceptance, and consideration.
  • Proving an oral contract can be challenging; courts often rely on witness testimony, written communications, and conduct showing the agreement’s existence.
  • The Statute of Frauds requires certain agreements—like real estate sales or contracts over one year—to be in writing, though exceptions exist.
  • Handshake deals can be binding but are harder to prove without corroborating evidence.
  • Risks include memory discrepancies, unclear terms, and limited enforceability across jurisdictions.

Oral contracts are verbal agreements between two parties. An oral contract occurs when spoken words are rendered valid and legally enforceable in a court of law. However, an oral contract is not legally enforceable unless it is provable in court, and it must meet various requirements of contract formation. Further, it must not be in violation of statutes prohibiting oral contracts. For example, state statutes may require sales involving real property, and the agreements may have to be in writing, or the performance must take over a year.

Although it’s hard to prove if a breach occurs, such a contract is still legally binding. A noteworthy example of oral contract enforceability took place in the 1990s, when actress Kim Basinger retracted her promise to play a role in “Boxing Helena.” The jury granted producers $8 million because of the broken promise, but Basinger appealed the decision and settled for a lower figure. However, she had to file bankruptcy as a result.

Oral agreements may also be called verbal contracts; however, this is an incorrect statement. Verbal contracts entail any contract since all agreements are forged with language. Rather, an oral contract is a legal agreement that can be enforced by a judge, if necessary.

Oral Contract Requirements

Oral agreements include the following attributes:

  1. The offer
  2. Acceptance regarding the offer
  3. Consideration

In certain cases, an agreement is not valid unless the agreement terms are in writing. In the case of an offer, it is a promise, or various promises, to perform a certain task. For example, the offeror promises to purchase a vehicle, or he promises not to work for anyone else during an employment term.

After, the offeror waits for the acceptance from the person who may agree to the deal, otherwise known as the offeree. For instance, Henry offers Mike $2,500 to buy a living room set. In return for the cash, Henry promises to give Mike the living room set.

Moreover, the consideration renders an oral agreement legally binding in nature. This also means that a party has every right to commence litigation because of the terms of the oral contract. If Henry fails to give Mike the living room set, Mike may then sue him. This also means that a person has a right to litigation because they must legally enforce oral commitments that another party made. Take note of the following types of consideration:

  1. Property
  2. Goods
  3. Services
  4. Money
  5. Promise to refrain from doing a task
  6. Promise to perform a certain task

Common Scenarios for Oral Contracts

Oral contracts are frequently used in everyday transactions where the stakes are relatively low and the parties trust each other. Examples include:

  • Service Agreements: Hiring a gardener, plumber, or babysitter without a written contract.
  • Sale of Low-Value Goods: Selling second-hand items between acquaintances.
  • Short-Term Business Arrangements: Temporary subcontracting or consulting work.
  • Informal Partnerships: Agreeing to share profits from a small venture, such as a weekend market stall.

While convenient, even these scenarios benefit from some form of written confirmation—like an email or text message—to avoid later disputes.

Proving an Oral Contract

Enforcing an oral contract requires substantial evidence to prove its existence and terms. Courts typically evaluate:

  • Testimonies from Parties or Witnesses: Statements from individuals directly involved in the agreement.
  • Written Communication: Emails, text messages, or other documents referencing the agreement.
  • Performance Evidence: Proof that one party fulfilled their obligations under the agreement.
  • Circumstantial Evidence: Situations that demonstrate mutual understanding and execution of the terms.

To strengthen enforceability, it's recommended to document key terms or secure a witness during the agreement process.

Tips for Strengthening Oral Contract Claims

Given the evidentiary challenges of verbal agreements, parties can take proactive steps to bolster enforceability:

  • Confirm in Writing Afterwards: Follow up conversations with an email summarizing terms.
  • Involve Witnesses: Have a neutral third party present when the agreement is made.
  • Maintain Records: Keep receipts, invoices, and correspondence that reference the deal.
  • Demonstrate Performance: Document actions taken in reliance on the agreement, such as purchased materials or completed services.
  • Record Key Conversations (Where Legal): Some jurisdictions permit recording with consent, which can serve as strong evidence.

These actions can significantly improve the chances of prevailing in court if a dispute arises.

Statute of Frauds

Oral agreements are not enforceable when they fall under the category of Statute of Frauds. It is an old law that prevents deceitful behavior and has long durations or high stakes. The Statute of Frauds mandates certain agreements in writing for various contracts:

  1. Land
  2. Paying off another person’s debt
  3. Marriage
  4. Property transfers
  5. Contracts that have over one year to finish
  6. Contracts lasting longer than the lifespan of the participants
  7. Agreements regarding a certain amount of money (varies by state)
  8. Real estate leases that last over a year
  9. Real estate sales involving executors of a will

Courts will not usually enforce agreements if they fit into one of these categories. To be legally binding, some type of writing must be in place to protect all parties. With that, the Statute of Frauds comes with various exceptions. Also, even if oral agreements fall within the terms, they will be enforced in the following ways:

  1. If a single party partly complied to the terms
  2. Plaintiffs relied on a defendant’s promise and suffered a detriment of some kind

In the event that a breach occurs, it is up to the plaintiff to prove the necessary evidence. Also, the odds are stacked against plaintiffs when it comes to oral cases because they can be hard to prove in court.

State-Specific Rules for Oral Contracts

While the Statute of Frauds provides a general framework, state laws vary on which oral contracts are enforceable. For example:

  • Florida: Allows oral contracts in many cases, but real estate transactions and agreements taking more than a year to perform must be in writing. The statute of limitations for enforcing an oral contract is four years.
  • California: Generally enforces oral agreements unless prohibited by statute, with a two-year statute of limitations for most oral contract claims.
  • New York: Certain oral agreements, such as those for the sale of goods over $500, require a writing under the Uniform Commercial Code.

Because these rules differ, parties should confirm the enforceability of their oral agreements under local laws before relying solely on verbal commitments.

Exceptions to the Statute of Frauds

While the Statute of Frauds requires some agreements to be in writing, certain exceptions apply, including:

  • Partial Performance: When one party begins executing their part of the contract, courts may enforce the agreement.
  • Promissory Estoppel: If a party relies on the agreement to their detriment, enforcement may occur.
  • Admissions in Court: Acknowledgment of the oral agreement by the opposing party during litigation.
  • Customary Industry Practices: In certain trades, oral contracts may hold more weight if widely accepted.

Understanding these exceptions can help determine whether an oral agreement is legally enforceable in specific scenarios.

Handshake Deals

Handshake deals are an old-fashioned way of agreeing to terms, and it was a way of ensuring that each party did not have a weapon within their sleeves. However, handshakes are a legally binding arrangement if a witness is involved. If you shook hands on the contract with no one there to see it, you would receive a right to work on your end of the agreement.

Risks and Limitations of Oral Contracts

Oral contracts, while legally valid, pose several risks:

  • Ambiguity in Terms: Misunderstandings are common without written clarification.
  • Memory Discrepancies: Parties may recall terms differently over time.
  • Enforceability Challenges: Courts often require tangible evidence, which oral agreements lack.
  • Statutory Limitations: State laws may impose additional restrictions on verbal agreements.

To minimize risks, consider formalizing agreements in writing, especially for high-stakes or complex transactions.

When to Avoid Oral Contracts

While oral agreements can be practical, they are ill-suited for transactions involving:

  • Significant Financial Stakes: High-value property sales, large service contracts, or major loans.
  • Complex Terms: Multiple obligations, staggered deadlines, or detailed performance requirements.
  • Regulatory Compliance: Industries with strict documentation requirements, such as real estate, healthcare, or finance.
  • Cross-Border Transactions: Different legal systems may have conflicting rules on oral agreements.

In these cases, written contracts provide clearer terms, stronger evidence, and greater legal protection.

Frequently Asked Questions

  1. Are oral contracts legally binding?
    Yes, oral contracts can be legally binding if they meet the elements of contract formation—offer, acceptance, and consideration—and are not prohibited by the Statute of Frauds.
  2. How can I prove an oral contract?
    Evidence can include witness testimony, written communications referencing the deal, proof of performance, and industry custom.
  3. What is the statute of limitations for oral contracts?
    It varies by state. For example, Florida allows four years, while California allows two years for most oral contract claims.
  4. Are handshake deals enforceable?
    Yes, handshake deals can be enforceable, but without supporting evidence, proving terms in court can be difficult.
  5. When should I avoid an oral contract?
    Avoid oral agreements for high-value, complex, regulated, or cross-border transactions—written contracts are safer in these cases.

To learn more about oral contracts, you can post your job on UpCounsel’s website. UpCounsel’s attorneys have graduated from some of the best law schools in the nation and will guide you in making the best agreement that protects your interests.