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The Truth About Oral Contracts: Enforceable or Not?

 

Marcellino & Tyson
Marcellino & Tyson March 15th, 2024
oral contracts

oral contracts

In the fast-paced arena of the business world, a common misconception we often encounter is the belief that “oral contracts aren’t enforceable.” This couldn’t be further from the truth. In reality, oral agreements are very much enforceable in many, if not most, legal circumstances. However, there are notable exceptions under the statute of frauds, such as contracts involving real estate, which typically require writing to be legally binding. This blog aims to shed light on the enforceability of oral contracts, the essentials of a valid contract (offer, acceptance, consideration), and the primary challenge with oral agreements: proving the terms without written documentation.

Basic Requirements of a Contract

At its core, a contract, whether written or oral, must meet three fundamental criteria to be considered valid and enforceable:

  • 1. Offer: One party must make a clear and definite proposal to enter into an agreement with another party.
  • 2. Acceptance: The party receiving the offer must agree to the terms as proposed without modifications.
  • 3. Consideration: There must be something of value exchanged between the parties, whether it is goods, services, money, or a promise to perform (or not perform) a specific action.

The Statute of Frauds and Exceptions

The statute of frauds is a legal doctrine that requires certain types of contracts to be in writing to be enforceable. The most common examples include:

  • Contracts for the sale or transfer of real estate.
  • Agreements that cannot be performed within one year.
  • Contracts for the sale of goods over a certain value (as per the Uniform Commercial Code).

Despite these exceptions, many other types of agreements do not fall under the statute of frauds and can be oral, yet still legally binding.

The Challenge of Oral Contracts: Proof

The most significant hurdle with oral contracts is not about their legality but proving what was agreed upon when there is no written record. This is where disputes often arise, as it can become a “he said, she said” situation.

Overcoming the Proof Hurdle

Even without a written document outlining the terms, there are ways to prove the existence and specifics of an oral agreement:

  • Actions of the Parties: The behavior and actions of the involved parties can be used to demonstrate the terms of the agreement. For example, if one party has been delivering goods and the other has been accepting and paying for them, this can evidence the terms of an oral contract.
  • Partial Writings or Correspondence: Even if there isn’t a formal contract, emails, text messages, or notes from meetings that reference the agreement can help establish its terms.
  • Testimony from Third Parties: Witnesses who were present at the time the agreement was made or who are aware of the dealings between the parties can provide crucial testimony supporting the existence and terms of an oral contract.

Conclusion

While oral contracts are indeed enforceable, the lack of written evidence can complicate matters, especially when disputes arise. The key takeaway is the importance of maintaining some form of documentation or proof of the agreement’s terms and conditions. Whether it is through actions that reflect the agreement, any written communications, or the testimony of third parties, these elements can significantly bolster the enforceability of oral contracts. Always consider the nature of the agreement and, when possible, secure a written contract to avoid potential legal challenges. Remember, a handshake deal is not without its merits or legal standing, but in the world of business, clarity and documentation reign supreme.