Short answer, maybe. There is no clear-cut response because it depends on the circumstances of how the oral contract was formed. Typically, when we think of a contract, a paper document comes to mind -- something physical and signed. But a verbal agreement -- confirmed with a handshake -- may too be considered a legally binding contractual agreement.
If there is a dispute about the particulars of a contract or a breach of contract arises, a court must determine if the initial agreement is valid. To be a valid, enforceable contract -- no matter if it is written or oral -- it must include certain “ingredients” -- or elements.
In order for a contract to be valid, it must include four basic elements:
- Offer: The onset of a contractual agreement. An offer may be for goods -- items you can purchase -- or services -- work to be performed. The other party may accept the offer, deny the offer (which essentially kills the contract) or amend, make changes to, the contract (which kills the initial offer and is a counteroffer that forms a new contract). The offer should include specific information such as quantity of an item ordered, date of delivery or performance of service, price, etc.
- Example: Person A asks Person B if they would like to purchase 100 new blue drinking glasses for $1 per drinking glass to be delivered in one week.
- Acceptance: This is when the other party agrees to the terms of the offer.
- Example: Person B phones Person A and tells them they want to order the 100 drinking glasses for their new restaurant and agrees to send a check to Person A in the amount of $100.
- Consideration: Consideration is the benefit (money, service, drinking glasses, etc.) that each party receives from the contract. Another way to determine consideration is by answering the question, “What do I get from this agreement?”
- Example: In our drinking glass example, the consideration Person A will get is $100 and Person B will get 100 drinking glasses.
- Mutuality or “Meeting of the Minds”: The parties involved in the contract are all on the same page with the agreement. Each party is aware of the obligation they are expected to fulfill with the contract.
- Example: Person A and Person B know they are agreeing to exchange money for drinking glasses.
It is more challenging to prove these elements if a formal written document between the parties does not exist. A judge will consider evidence that may prove whether or not the criteria of a valid contract was met.
Here are some examples of evidence that the court may include:
- Email Messages: ones sent between the parties that mention particulars about the agreement. (Person B sends Person A an email message stating they look forward to receive their delivery of 100 drinking glasses. Person A responds that the glasses shipped and are scheduled to arrive the following day.)
- Testimony from Any Witnesses: from those present when the agreement between the parties was made.
- Cancelled Check or Receipt of Payment: anything that shows consideration between the parties was made.
There are many important elements of a contract. They are all required for a contract to be considered valid in the eyes of the law. In addition to the ones mentioned above, the following must also be present:
- Competence & Capacity: Competence and capacity deal with whether or not an individual or individuals were able to enter into a contract. If the basic elements of a contract are fulfilled but it is determined that an individual is unable to enter into a contract because they are a minor (underage), mentally incompetent or under the influence of drugs or alcohol, the court will typically not enforce the contract.
- Legal: Contracts that solicit illegal activities are not valid and unenforceable.
- Written Requirement: Some contracts must be in writing. The Statute of Frauds requires that certain agreements must be in writing. Examples include, the sale of real estate and entering into a marriage.
It is always a good idea to put contractual agreements in writing because the terms and conditions are easier to prove if an issue arises. Courts do recognize that oral contracts are formed between parties and may enforce them if provided with the proper information.
Oral contracts are never advisable and as you can see, are not always easy to enforce. If you made an oral contract and if a contract dispute arises, then it is best to discuss remedy options with an experienced and knowledgeable business attorney.