Nearly everyone has entered into an oral contract at some point, but they can be difficult to enforce. Learn how to protect yourself. Show
Everyone makes an oral contract, verbal agreement, or handshake agreement at one point or another. But it's important to understand whether oral contracts are legally valid and enforceable—they may be in some situations but not in others. If you're creating one as part of your business, it's particularly important to understand the rules concerning oral contracts. Competency As the First RequirementFor any kind of contract to be valid, the parties who agree to the contract must be competent and able to create a contract. This means the parties must be:
Lucrecia Johnson, an attorney at LPJ Legal PLLC, says that the competence requirement doesn't mean that a party cannot agree to an oral contract and then say, 'I didn't know what this meant.' It is expected that if you have the capacity to agree, "You had the ability to figure out what it means via your own research or hiring an attorney," she says. Contract Elements and How They Work TogetherTo be valid, an oral contract must contain all of the following elements, which are required in any other type of contract:
According to Johnson, parties should follow the following process to establish an oral contract:
Johnson notes that if one of these elements is missing, there is no contract. For example, you can't shovel someone's sidewalk and go to their door and ask for $20 because they didn't make you an offer. Once you have offer, acceptance, consideration, and meeting of the minds, you have a contract. Failing to meet the terms that were agreed on is a breach of contract. When Oral Contracts Aren't Valid: the Statute of FraudsAn oral agreement can be legally enforceable if it is in compliance with something called the statute of frauds. The statute of frauds sets out certain types of contracts that must be in writing to be valid. "The reason for the statute of frauds is that generally speaking, these rights are ... so important that they should be in writing to protect the interest of the parties," Johnson said. For this reason, the following contracts are never valid if:
Ways to Prove an Oral ContractIf you're in a position where you need to provide evidence that an oral contract exists, the following evidence can be useful:
When to Use Oral ContractsAccording to Zachary Hanby of Fisher Stone, P.C., "Oral contracts are better for everyday, miscellaneous things. 'I'll pay you 20 bucks for gas if you drive me to the airport.' Any serious business shouldn't be using oral contracts and should always get the agreement in writing, even if it is more work. Oral contracts are incredibly hard to prove and just as hard to enforce." Iveljic added, "At a minimum, a party to an oral contract should confirm the terms of the deal in writing. For instance, one side to an oral contract can send an email to the other side with the material terms and not act on the contract until the other side responds to the email confirming that the terms are accurate. Without [being in] writing, the oral contract can be easily disputed by either side, and it will be very hard, and potentially costly in court, to prove what the deal actually was." Oral contracts are a common way of doing small, casual deals. But if you're creating a contract related to your business, writing is best. Which of the following contracts must be in writing to be enforceable?The following types of business contracts must usually be in writing to be legally enforceable: Contracts governing the purchase or transfer of land. Contracts relating to activities that will extend beyond one year. Contracts involving the sale of goods above $500.
What is an example of an oral contract?A verbal contract is a type of agreement (between two or more parties) that is made through spoken words rather than a written document. An example would be if you were at a yard sale and offered to buy a piece of furniture or an article of clothing for $100 and the yard sale host accepted your offer.
Which of the following is a special circumstance in which an oral contract may be enforceable under the UC see?What is a "special circumstance" in which an oral contract may be enforceable under the UCC? The seller is specially manufacturing goods for the buyer and begins work on them before the buyer cancels the order.
Under what circumstances will the courts allow enforcement of an oral contract required by the Statute of Frauds to be in writing?Under what circumstances will the courts allow enforcement of an oral contract required by the Statute of Frauds to be in writing? executory contracts and both parties have fully performed according to its terms.
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