Validity of Oral Contracts: Everything You Need to Know
The validity of oral contracts begins when two or more parties agree to do something or not do it.3 min read
2. When is Written Form Required?
3. Statute of Frauds
4. The Role of Witness Testimony
5. Course of Conduct
6. Each Party's Credibility
The validity of oral contracts begins when two or more parties agree to do something or not do it. An oral contract is an agreement that's spoken instead of written and it's legally binding. It's better to get a contract in writing because if the parties disagree later over the terms of the deal, not having it in writing creates problems for both parties involved.
For a verbal contract to be enforced by the court, involved parties each have to provide proof of their version of how the deal was arranged. They also have to prove that there was a meeting of the minds and the court case and discovery process can be extensive and expensive.
Written Form Is Ideal
If an agreement is reached verbally, the deal can still be put into written form to formalize the contract. Putting it in writing clarifies the terms of the deal and it completely gets rid of some of the potential problems that can arise later. Getting an attorney to write up the draft of the deal and go over the contract is one option. Expect the attorney to make sure the necessary legal language is in the finished document. An attorney can also help explain what your obligations are when you agree to the deal.
When is Written Form Required?
Some types of contracts have to be in the written form in order to be enforceable under the statute of fraud. Contracts regarding the sale of goods are governed under the Uniform Commercial Code or UCC. The UCC holds that any goods sold with a value over $500 need to be covered by a written contract.
State laws also include several kinds of contracts that need to be prepared in written form. Contracts that must be written under state law include those regarding:
- Selling land
- Leasing land
- Marriage contracts
- Contracts where one person agrees to pay the debt incurred by another person
- Any contract that's going to take more than one year to complete
Statute of Frauds
An oral contract can't be enforced under the law if it's covered by the statute of frauds because the statute of frauds requires contracts of certain types to be presented in the written form. Difficulty proving that an oral contract exists is another issue with this type of contract because if it's not in writing it's harder to prove.
The Role of Witness Testimony
If anyone else was with you when you were having the discussion that created a verbal agreement and that other person is willing to testify for the court, that can be a way to confirm that a verbal contract existed. The witnesses have to be able to use their testimony to prove that they heard you discuss the agreement and what each person involved in the deal agreed to do.
Course of Conduct
A course of conduct uses an action between one or both of the parties involved in a verbal contract to prove the existence of the contract. For example, someone makes a deal to buy a house, the deed is exchanged, then one of the parties change their mind. It would be too late to break the deal because the course of conduct, which was exchanging the deed, has already established the contract.
Any action you take that indicates an oral contract exists can also be considered evidence of course of conduct. One example would be paying the newspaper delivery person for a week, changing your mind later, and refusing to pay. You couldn't say a verbal contract to get the newspaper delivered didn't exist because you had taken and paid for the service for a week
Each Party's Credibility
If an oral contract or dispute goes to court, each party's credibility has to be established or questioned by the court. This differs from witness and character credibility. It's about proving that one party's action, or their statement, is either believable or not believable in regard to the contract.
For example, going into a restaurant and ordering food creates an understanding of a binding oral contract. If the person ordering the food later says they thought the food would be free and they refuse to pay for it, that would be an incredible or unbelievable incident. It would also be unlikely to stand up to the court's scrutiny.
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