Key Takeaways

  • Oral Contracts: Legally binding agreements created through spoken words.
  • Challenges: Enforcement can be difficult due to lack of physical evidence.
  • Statute of Frauds: Certain contracts, like those involving real estate, must be in writing.
  • Handshake Deals: May be binding if witnessed, emphasizing the importance of trust and compliance.
  • Burden of Proof: Plaintiffs must provide clear evidence to enforce oral agreements.
  • Exceptions: Partial compliance and reliance on promises can make oral contracts enforceable in some cases.

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

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.

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.

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.

FAQ Section

Q1: What is an oral contract?An oral contract is a legally binding agreement made through spoken words without written documentation.

Q2: Are oral contracts enforceable in court?Yes, but proving the terms and existence of the agreement requires evidence like testimonies, communications, or partial performance.

Q3: What is the Statute of Frauds?The Statute of Frauds mandates certain contracts, such as those involving real estate or debts, to be in writing to be enforceable.

Q4: What are the exceptions to the Statute of Frauds?Exceptions include partial performance, reliance on a promise, and admissions of the agreement in court.

Q5: How can I protect myself in an oral contract?Ensure clarity in terms, secure witnesses, and document the agreement whenever possible to enhance enforceability.

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.