What defines an oral contract?
An oral contract is a verbal agreement usually by shaking hands without the agreement being in writing.
Example
Jacqueline is the owner of a Los Angeles bar that offers unique vodkas and whiskies. Therefore, she is always on the hunt for interesting new brands, including those from small sellers. One day, while at a whisky convention, Jacqueline meets Fred, who is advertising his own specialty blend. Jacqueline thinks the taste is excellent, and she asks Fred if he would consider supplying her bar with a regular shipment. Fred agrees, but he asks for payment upfront. Jacqueline agrees, and after she pays him, they shake hands on the deal. However, a month later, Jacqueline has not received any of Fred’s whisky. She plans to take him to court to sue over the breached contract. However, Jacqueline is concerned because they had an oral contract. She is not sure how an oral contract is enforced, and whether she can get justice after Fred’s deceit.
Are Oral Contracts Enforceable?
Believe it or not, verbal contracts are enforceable in a court of law. Generally, these types of contracts are not in an individual’s best interest. This is because without written evidence, disputes about verbal agreements often result in “he said, she said” arguments. That said, as long as enough evidence is provided, a court can and will enforce a verbal contract.
However, the Statute of Frauds constitutes a major exception to this rule. Centuries old, this law is designed to prevent fraudulent, deceitful behavior. This is especially the case when a contract is high stakes or of long duration.
What Is the Statute of Frauds?
As a general contract law principle, the Statute of Frauds has been adopted in most U.S. states. The Statute requires that a contract be in writing in the following situations:
- Real estate sales
- Real estate leases with a duration of longer than one year
- Transfers of property at the owner’s death
- Agreements to pay another’s debt
- Contracts that necessarily take more than one year to fulfill
- Contracts that last longer than an individual’s life
- Contracts for over a certain amount of money (depends on the state)
In general, a court will not enforce verbal contracts if they fall under one of the above categories. In these situations, there needs to be some kind of writing that has been signed by both parties.
Of course, there are exceptions to the Statute of Frauds. If an oral contract meets its terms, it can still be enforced if one of the following is true:
- One party partially complied with the terms
- The plaintiff relied on the defendant’s promise and suffered some injury as a result
When it comes to a contract dispute, the plaintiff suffers the burden of providing evidence.
Contract law does not favor oral contracts, even if it permits them. Oral contracts are difficult to prove, and they often form the grounds for fraud. Therefore, an individual making a contract is advised to record it in writing.
How Can a Verbal Contract Be Enforced?
Enforcing a verbal contract will depend largely on the specific circumstances of the case. That said, many cases include the following factors:
- The conduct of the parties following the creation of the supposed contract
- Past behavior between the parties
- How similar agreements are typically conducted
- Testimony of the parties involved
- Witness testimony
- Each party’s credibility
Evidence such as that described above can help a court determine the fundamental terms of the contract, as well as whether the contract was broken.
How Does One Prove the Terms of a Verbal Contract?
To prove the terms of a verbal contract, often there must be testimony from both parties as well as details of their behavior before and after the agreement was made.
It is true that the testimony often turns into a “he said, she said” scenario, however any inconsistencies in one’s side story can be a sign they are not credible or reliable. This would provide evidence that an agreement was not structured the way the individual said it was.
In general, the behavior of the parties before and after the supposed contract is the most revealing and is more reliable than any testimony. For instance, if one party paid the other, this counts as evidence that there was an agreement of some kind. If a good or service was provided sometime around this payment, then the terms of the verbal contract become a little clearer.
Other written documentation may prove useful, even if not an actual contract. For example, invoices, emails, letters, and text messages can offer indirect evidence of a verbal agreement. Perhaps there was a text message asking, “when will the item be delivered?” This kind of message would show that one party believed there to be an agreement.
On occasion, a witness may be called to offer eyewitness testimony. Witnesses may include third parties who were present at the time a contract was established. Evidence may also be gathered from individuals who were unknowingly a part of the agreement, such as employees of one of the parties. These individuals can testify what they believed the agreement to be, if it existed, based on how their job duties changed before, during, and after the verbal contract was made.
As is evident, it can be rather complex to determine the nature of a verbal agreement. Establishing the details of the contract involves a lot of indirect and circumstantial evidence from many different sources.
