Key Takeaways

  • Oral agreements can be legally binding, even for transactions under $500, but proving them can be challenging.
  • The Uniform Commercial Code (UCC) generally requires a written contract for goods over $500, but there are exceptions.
  • Verbal contracts must meet standard contract elements: offer, acceptance, consideration, and mutual intent.
  • Certain types of contracts must be in writing under the Statute of Frauds.
  • Witnesses, actions (course of conduct), and credibility play a key role in enforcing verbal agreements.
  • Exceptions such as partial performance, admission in court, or specially manufactured goods may validate an oral contract under the UCC.
  • While binding in theory, oral contracts are risky in practice and often difficult to enforce without written evidence.

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.

Elements Required to Enforce an Oral Agreement

To be legally binding, an oral agreement must satisfy the same essential elements as a written contract:

  1. Offer – One party must clearly present terms to another.
  2. Acceptance – The receiving party must agree to those terms.
  3. Consideration – There must be an exchange of something of value.
  4. Mutual Intent – Both parties must intend to enter into a legally enforceable agreement.

Even if an agreement is verbal, these components must be present. If any are missing, courts are unlikely to uphold the agreement—regardless of the dollar amount involved.

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

Exceptions to the UCC Writing Requirement for Goods Over $500

While the UCC typically requires a written contract for sales of goods valued at $500 or more, several exceptions allow oral agreements to be enforceable:

  • Specially Manufactured Goods: If the goods are custom-made for the buyer and cannot be resold, an oral contract may be valid.
  • Admission in Court: If the party being sued admits in court that a contract was made, the agreement can be upheld even without a written record.
  • Partial Performance: If payment has been made and accepted, or goods have been delivered and accepted, the contract may be enforceable to that extent.

These exceptions are important when evaluating whether oral agreements under $500—or even over—may still hold legal weight.

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.

Are Oral Agreements Under $500 Binding?

Yes, oral agreements under $500 can be binding, particularly when they don’t fall under the types of contracts that the Statute of Frauds requires to be in writing. For sales of goods valued under $500, the UCC does not mandate a written contract, which means verbal agreements are generally enforceable, provided they meet the standard requirements of a valid contract.

However, even when a written form is not required, the lack of documentation increases the difficulty of enforcement. This is especially true if the agreement is contested or the terms are vague. Courts will examine other forms of evidence such as witness accounts, partial performance, and behavior consistent with a contract.

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.

Risks and Limitations of Relying on Oral Agreements

While legally permissible, relying solely on oral contracts comes with several risks:

  • Evidentiary Issues: Without documentation, it becomes a matter of one party’s word against the other.
  • Misunderstandings: Verbal agreements often lead to disputes over the exact terms or obligations.
  • Memory Decay: Parties may remember the terms differently over time.
  • Difficulty Proving Breach: Establishing nonperformance or damages is harder without a written agreement.

Frequently Asked Questions

1. Are oral agreements under $500 legally binding? Yes, they can be. Most state laws and the UCC allow oral agreements for goods under $500, provided the contract includes the essential elements of a valid agreement.

2. What makes a verbal contract enforceable in court? A verbal contract must include offer, acceptance, consideration, and mutual intent. Supporting evidence such as witness testimony or partial performance strengthens enforceability.

3. What is an example of a valid oral agreement? If you verbally agree to pay $200 for landscaping services, and the landscaper completes the job as agreed, that contract is likely enforceable.

4. When do oral contracts need to be in writing? Contracts involving land sales, marriage, long-term obligations (over one year), or goods over $500 (with exceptions) typically must be in writing under the Statute of Frauds.

5. What should I do if someone breaks a verbal agreement? Gather all available evidence—texts, emails, receipts, witness statements—and consider consulting an attorney. You can also post your legal need on UpCounsel to get help from experienced contract attorneys.

For these reasons, even if oral contracts under $500 are binding in theory, in practice, they may be difficult to enforce. When stakes are high or the agreement is complex, written contracts are strongly advised.

If you need help with the validity of an oral contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.