When oral contracts can be used

Here’s a lawyer’s answer to the question: an oral contract is enforceable if it is an otherwise valid contract and it is not rendered unenforceable by some other aspect of the law. What does that mean? To answer whether a particular oral agreement is valid requires that you look at three general questions. First, is this a contract at all? Second, is there something about this contract that would require that it be in writing? Third, even if this is an otherwise good contract, is there something to make this contract (oral or written) unenforceable? Let’s look at each question in turn.

First, is this a contract at all? A simple way to think about a contract is that it is a promise (or set of promises) that we are willing to enforce in court. There is nothing in this definition that requires a contract to be in writing. The traditional way to determine if you have a contract is to see if there are three things: an offer to contract, an acceptance of the contract, and something called “consideration.” Offer and acceptance seem obvious on the surface, but of course once people start fighting about whether there is a contract they will start to claim that there was never offer and acceptance. But for basic purposes, if you walk into a store and say, “I’ll buy that vase for $100,” you have made an offer. If the shop-keeper says, “you’ve got a deal,” there has been acceptance.

So, what is this “consideration” thing? It basically means that both parties have to be giving something of value in order for there to be a contract. In the example above, one party agrees to give up $100, and one party agrees to give up a vase. There is consideration because each person is going to give up something that they have a right to keep. But what if you walk into the shop and say, “I’ll give you $100 tomorrow.” Tomorrow comes and goes, and you’ve changed your mind. If the shop-keeper sues you for breach of (that is, breaking) your contract, you have a defense that there was no consideration: the shop-keeper never promised you something in return. A lawyer would call that a “unilateral promise.” That is not a contract. Same with “I promise to love you until I die.” No contract there, unfortunately. There are some exceptions to this rule, such as when you make a promise and somebody relies on a good faith belief that you really are going to live up to that promise. You might be held to a promise in those cases.

Second, does some other law require the contract to be in writing? There are any number of reasons why we, as a society, might like to change the general rule that oral contracts are enforceable. For example, the benefits and obligations of owning land are so huge, we want to make sure that there is no doubt about who owns the family farm. Or, when businesses are making million dollar deals, we might worry that there is too much of an incentive to cheat each other. Or, if we make a contract that will take several years to carry out, we might worry that when the time finally comes to live up to our obligations that our memories of the original deal are starting to turn a little cloudy. So many hundreds of years ago, the English passed a law called the Statute of Frauds, which said that those types of contracts (real estate, expensive sales, contracts that will take a year or more to complete, and contract to get married) had to be in writing or the courts would not enforce them. Most of those examples still live on today.

These days there are other examples. Some locations require that certain leases to rent a property must be in writing, or that certain sales of home improvement products if you are using your house as collateral must be in writing. These types of restrictions on oral contracts will vary from one place to another, and you will need to talk to a local lawyer to figure out if they apply to you.

Third, is the contract, oral or written, invalid for other reasons? There are a handful of other reasons why a court will refuse to enforce a contract, even if we have jumped through all the right hoops. For example, duress (forcing somebody to agree to something), will make the contract invalid. So will fraud (lying to somebody in order to get them to agree to it.) In some cases, mistake will make the contract invalid: if we agreed to buy or sell the $100 vase because we both believed that it was an antique, and then we discover that we were wrong, the contract might be void. In some cases, a state will decide that certain contracts are “void as against the public interest.” The classic example is a contract to kill somebody. If somebody violates that contract, we certainly will not use our courts to say that the contract must be enforced.

So despite all the language, the answer is relatively simple. Did you have a valid contract, which usually means offer, acceptance, and consideration? Is this a type of contract the we have decided by law must be in writing? Is there some reason, such as mistake, fraud, duress, or public policy, that makes us unwilling to use a court to enforce the promise? If the answers to those questions are “yes, “no” and “no,” then your oral contract is enforceable.