Are oral contracts legally binding? Can a verbal agreement between two parties be enforced if the obligations and expectations are not documented in writing?
Are oral contracts legally binding? Can the courts uphold a verbal agreement reached by two parties without expressing their responsibilities and expectations in writing?
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Can Oral Contracts Be Enforced?
Most attorneys advise clients to use written contracts. While writing down your contracts has many practical advantages, an oral contract is just as legally enforceable. Before a party may sue for breach of contract, the following three components must be present:
The presence of a legally binding agreement between the parties.
It must be shown that the defendant violated the contract.
Damages incurred as a result of the defendant’s activities.
The legitimacy of a contract is unaffected by whether it was written or oral. Only when the statute of frauds applies is a contract need to be in writing before it may be enforced. An oral contract that falls outside of this group is enforceable.
The Frauds Statute
The notion of a statute of frauds was developed in the 17th century in the United Kingdom. During that period, it was illegal for a contractual party or their spouse to testify in a lawsuit over contract problems. This resulted in the employment of witnesses to commit fraud by providing false testimony of contract conditions while not being a party to the agreement’s contents. To address this issue, the British Parliament passed the Frauds Act in 1677. To combat fraud, the law of frauds defines six types of oral contracts, which include:
Contracts that indicate that the assets of a will’s executor must be utilised to satisfy an estate obligation.
Contracts used in marriage (like dowry)
Contracts that cannot be completed within one year of their inception.
Land sales contracts
Contracts in which one party acts as a guarantee for the debts of another.
Contracts for the sale of products valued at least 10 pounds sterling.
From 1677 onwards, the courts refused to hear parties seeking execution of any contract that might be classified as one of the six listed above. The statute’s functions include the following:
Reduce the occurrence of courtroom fraud.
Dissuade contractual parties from engaging into such arrangements.
Allow contractual parties to make informed decisions during negotiations.
After becoming an independent country, the United States accepted English common law, albeit the law has been amended to reflect the uniqueness of American society. One of the statutes accepted by the new country from its old colonial ruler was the statute of frauds.
Meanwhile, the statute of frauds has practically been abolished in current English law, with the exception of a provision that only written contracts be used to guarantee the debt of another party. Except in this one case, English courts will uphold all other sorts of oral or written contracts. The United States courts, on the other hand, adopts a different approach. The statute of frauds is different in almost every state in the nation.
Lawyers often encourage their clients to get their contracts in writing so that the contents of the agreements can be proven in court. A written contract serves as evidence in the event of a dispute over its fulfilment. However, owing to various perspectives, memory challenges, and the integrity of witnesses, proving oral contracts may be difficult, if not impossible. Furthermore, the statute of limits for oral contracts is four years, since memories fade fast, as opposed to the six-year statute of limitations for written contracts.
When Does an Oral Contract Become a Legally Binding Contract?
An oral contract is enforceable if it has the following three elements:
A proposal
Acceptance of the proposal
Consideration, i.e. the imposition of a duty.
Here’s an example to demonstrate this notion. As a woodworker, you make a $5,000 offer to assist a homeowner in building a new kitchen cabinet. Your $5,000 offer in return for a new kitchen cabinet is accepted by the homeowner. Without the necessity for writing, a contract is in existence. The contract is legitimate and enforceable as long as the three parts of a contract are present, as in the example above.
However, one of the parties to an oral contract may forget or pretend to be unaware of the existence of an agreement with you, making it difficult to establish and get your rightful compensation. To prevent such issues, you might have a third party witness the completion of the initial agreement or the contract’s implementation. However, the witness may not be accessible when contract issues emerge, or he or she may not be trustworthy.