What Is an Oral Contract?
An oral contract is a type of business agreement conveyed and settled through spoken communication without being documented in writing. Despite the challenges in proving an oral contract’s terms during a breach, these contracts hold legal validity.
Key Takeaways
- An oral contract is formalized through spoken communication rather than written documentation.
- These contracts are legal but proving their existence in court can be challenging.
- The enforceability of oral contracts varies by jurisdiction and type of agreement.
- Oral contracts are best suited for straightforward deals, whereas intricate agreements should be documented in writing.
Understanding Oral Contracts
Oral contracts are usually as legitimate as written ones, contingent on the jurisdiction and contract type. However, specific categories of contracts, like those involving real estate conveyance, require written documentation to be legally enforceable.
In certain jurisdictions, oral agreements must be supported by written evidence. After agreeing verbally, the terms should ideally be documented. Examples of evidence supporting oral contracts include witness testimony, letters, memos, bills, receipts, emails, and faxes.
Real-World Example:
One notable instance of an oral contract being enforceable involved actress Kim Basinger, who retracted her verbal commitment to star in the 1990s film Boxing Helena. Consequently, she was ordered to pay $8 million in damages to the producers, though the amount was eventually settled for less after an appeal.
When Oral Contracts Fall Apart
Oral contracts are most effective for simple exchanges. For example, a verbal agreement to trade a used lawn mower for a used clothes dryer does not necessitate extensive details. Simpler contracts reduce the likelihood of courtroom disputes. However, complex agreements, such as employment contracts, generally require written documentation to maintain clarity and avoid legal discrepancies.
Is an Oral Contract Enforceable?
Generally, an oral contract is enforceable, though proving it can be cumbersome. The jurisdiction where the contract is contested and the type of agreement involved influence its enforceability.
What Makes a Valid Oral Contract?
A legitimate oral contract involves an offer—usually a price or an action promise—and an acceptance of that offer. Typically, all that’s required is the mutual agreement between the offering and accepting parties, often facilitated via verbal communication.
What Are the Disadvantages of Oral Contracts?
Primary disadvantages of oral contracts include enforcement difficulties, potential misunderstandings, and outcomes inconsistent with initial agreements. As conversations can be misinterpreted or forgotten, verbal contracts inherently carry increased risk.
The Bottom Line
Despite the legal binding nature of oral contracts, they often pose proof challenges in litigation. Written and signed documentation is recommended for all contracts to prevent ambiguities and future disputes.
Related Terms: binding contracts, legal disputes, contract law, written contracts, evidence of contracts.
References
- Variety. “Basinger ‘Boxing’ Suit Settled”.
