An oral contract is a legally binding spoken agreement between two or more parties which is not written down. Although it can be difficult to prove the existence and terms of oral contracts, oral contracts are generally legally enforceable and the party which breaches an oral contract can be held liable.
What are the Elements of an Oral Contract?
The basic requirements for forming a valid oral contract are similar to the requirements for forming a valid written contract. These requirements include:
- Offer: This is when one party expresses a willingness to enter into a contract with another party. The individual who initiates an offer is known as an “offeror” and the individual who receives the offer is known as an “offeree”.
- In order for an offer to be considered valid, it has to consist of a statement of present intent by the offering party to enter into a contract, a specific proposal which is certain in its terms and a communication that identifies the party or parties to whom the offer is made. There is no valid offer if any of these elements are missing.
- Acceptance: This is when the offeree consents to the terms of the offer and agrees to enter into the contract. If the individual accepts the offer, it is necessary to do so in the manner which was requested or authorized by the offering party.
- However, if the party to whom the offer was made changes even some of the terms of the offer, then the initial offer has been rejected and the offeree has made a counter-offer which may or may not be accepted by the other party.
- Consideration: This can vary depending on the agreement. In a bilateral contract, the consideration is the mutual exchange of promises between each party.
- For example, party A promises to pay fifty dollars in exchange for party B’s promise to mow Party A’s lawn. This mutual exchange of promises makes the contract legally binding. However, in a unilateral contract, the consideration is actual performance by the party which accepts the offer.
- For example, Party A offers a reward of fifty dollars for anyone who finds a particular missing item. If Party B sees the offer, finds the missing item and returns it to Party A, then Party A would be legally obligated to pay Party B because Party B actually performed by finding and returning the item.
- Lawfulness: The subject matter of a contract cannot be illegal or violate a public policy.
- For example, a contract for selling illegal drugs would not be enforceable.
- Competence: A contract is only valid when all of the parties entering into it are considered to be competent and if one of the parties is considered incompetent, then the agreement would not be considered valid.
How is an Oral Contract Proved?
In general, because of the lack of a clear written agreement, oral contracts are harder to prove. However, certain evidence can be used to bolster the enforceability of oral contracts such as:
- The testimony of witnesses to the creation of the contract;
- When one or more parties performs the contract; and/or
- Other evidence such as faxes, emails, receipts, letters, memos and bills.
Note that while the contract is completely oral, it doesn’t mean that the court will ignore any physical evidence. For example, emails may not contain the actual agreement/contract, but they can contain questions or details. The emails might even refer to it, like “Remember, our agreement?”.
When is an Oral Contract Inadequate?
Certain types of contracts have to be in writing and in legal terminology, these types of agreements come under “the statute of frauds”. These contracts include:
- Real estate sales;
- Real estate leases for longer than one year;
- Contracts that involve money which is over a certain amount;
- Agreeing to pay the debts of another individual; and
- Contracts that take more than one year to complete.
So if any of the above contracts were made orally, then they would be considered void. The law holds these sort of agreements to a higher standard, due to the fact that there is so much more at stake.
Should I Contact a Lawyer?
Oral contracts are legally enforceable and breaking the terms of the contract would be considered a breach. However, oral contracts can also be difficult to prove and each party may make different allegations.
In this context, it would be beneficial to consult with an experienced business attorney who can inform you of your rights, determine if a valid contract existed between the different parties and represent you in court if necessary.