Verbal contracts differ from written contracts, but many oral contracts are enforceable in a court of law.
What Defines an Oral Contract?
Vicki and Samantha work in an office together and sometimes chat about their favorite hobby: mountain biking. On Thursday, Vicki tells Samantha that she has purchased a new bike and wants to sell the old one. The price of the bike is $4000.
Samantha tells Vicki that Samantha wants the bike but cannot afford it. Vicki apologizes but informs Samantha that she cannot lower the price—the bike is worth more than $4000. Samantha thinks for a second and then remembers that Vicki once told her that she hates mowing her lawn.
Samantha offers Vicki a deal: she will pay her $3000 for the bike, but she will also mow Vicki’s lawn every Saturday for six months.
Vicki says, “I accept,” and the two women shake hands. On Friday, Vicki brings the bike into the office and gives Samantha her address. Samantha promises to see her at 9 am on Saturday and bring her lawn mower.
Vicki and Samantha entered into a verbal contract with each other in which they exchanged goods (the mountain bike), services (mowing the lawn), and money (the $3000). An oral contract or verbal agreement is a specific type of business contract that relies on spoken communication. Verbal agreements are not written down, making it challenging to prove if one party violates the agreement.
All contracts rely on language, but in oral contracts, the emphasis is on the spoken exchange of terms. Although many believe that oral contracts are not enforceable, these unique agreements are legally binding. However, sometimes these agreements lack solid proof, and breaches of their terms lead to “he said, she said” battles.
What Are the Elements of a Contract?
Four fundamental elements of each contract need to be present to be legitimate. Contracts can be verbal, written, expressed, or implied, but they all must feature these elements:
Intent highlights the idea that both parties deliberately “intended” to agree. Therefore,
both parties understood, recognized, and respected that they had formed a legally binding contract. The intent is also called “mutual assent” or “a meeting of the minds.” Importantly, when one of the parties is a minor or mentally handicapped, assent is not considered to be present.
Based on the conversation between Vicki and Samantha, it appears that both parties intended to agree on the deal. In fact, Vicki said, “I accept,” when Samantha offered to cut her lawn and lower the mountain bike price.
The “offer” identifies the fact that one party offered something in return for something else. For example, a taco shop offers tacos filled with meat in return for customer payment. Sellers must phrase offers clearly to create a legitimate contract. For example, if the taco shop does not have a menu with prices marked, customers could assume that the tacos are free or that they can make up their prices.
When one party agrees to the other party’s terms, “acceptance” occurs. When the taco shop customer gave the worker $8:50 for a taco, they accepted the offer. However, if the same customer instead said, “I think I want a taco, but I might just want a bag of tortilla chips,” this is not acceptance of the deal. The taco shop’s offer must be clear, but the customers must also express their acceptance.
The “consideration” in a contract is the goods or services being traded. If one removes consideration from the equation, the product or item is not sold; it is gifted. For example, if the taco shop gives out free ice cream cones to teachers on teacher appreciation day, this is a gift because there is no expectation that the teacher will pay for their carnitas and fish tacos. However, when a customer pays $8.50 for a chicken taco, the contract has been fulfilled and rendered complete. Consideration, then, must possess value.
Returning to our example of Vicki and Samantha, the offer was made and accepted, and the mountain bike exchanged hands. Also, Samantha paid Vicki the agreed-upon sum of $3000 and promised to cut her lawn.
Is a Verbal Contract Legally Binding?
Typically, verbal agreements are considered just as legitimate as written contracts. However, the validity of these contracts depends on the parties’ actions and the specific type of agreement.
According to the Statute of Frauds, some contracts must be written down to be considered valid and binding.
What is the Statute of Frauds?
The Statute of Frauds is a general contract principle of law. The principle is a specific exception to the idea that verbal contracts are enforceable. The purpose of the Statute is to prevent deceitful conduct among the parties involved and is usually applied when verbal agreements feature long timelines or elevated stakes.
In general terms, and as used in most states, the Statute of Frauds specifies which situations and agreements require a written contract. The Statute includes:
- Sale of real estate
- Property transfers following the death of an owner
- Agreements to pay another’s substantial debt
- Real estate leases that last over one year
- Contracts that will take longer than one year to complete
- Contracts that will be longer than one or both parties’ lifetimes
- Contracts for over a certain amount of money (differs by state)
The court usually will not enforce verbal agreements if they fit into one of these categories. Instead of a verbal agreement, these situations require documentation that both parties sign.
There also exist exceptions to the Statute of Frauds. If the verbal agreement lands within the terms of the Statute of Frauds, it remains enforceable if:
- One party partially conformed to its terms
- The plaintiff relied on the defendant’s promise and, as a result, suffered a detrimental action or condition.
The plaintiff in the case must file a lawsuit for breach of contract and provide the evidence to the court.
Since our focus is California, let’s look at the specific terms of the Statute of Frauds in California.
What Defines the Statute of Frauds in California?
The Statute of Frauds in California documents the contracts that are only enforceable if written down. These contracts include agreements for:
- The sale of goods over $500
- The sale of real estate
- The sale of personal property worth over $5,000
- A service that is unable to be performed during the lifespan of the person who promises to perform it
- A mortgage on a property
- A contract that lasts over one year
- Lending over $100,000 or providing the same amount of credit, not used for household, family, or individual expenses
- Answering the debt or default of another person
- A real estate sale or lease lasting longer than a year, involving an agent or broker as a third party
In some cases, a verbal contract is only binding if it also includes a written contract. In this scenario, the oral contract is agreed upon first, and then the parties write down the terms of the agreement.
Where Does Evidence Fit In?
When the parties perform the terms of the contract, oral contracts grow stronger. When individuals or businesses act on a contract, it sometimes validates the contract. The validity claim is even stronger when the parties bolster their actions with evidence. Evidence that a contract existed takes the form of:
- Letters
- Emails
- Bills
- Texts
- Invoices
- Receipts
- Memos
- Faxes
- Other documentation
While Vicki and Samantha appeared to agree on the terms of the deal, Samantha breached the contract. Samantha paid the $3000 but did not show up to mow the lawn on Saturday. When Vicki texted her, Samantha said she was too tired to mow the lawn and would do it next week. When the next week rolled around, Samantha did not show up. When Vicki called her, Samantha said she looked up the bike cost and felt she had paid the correct amount. She informed Vicki that she would not be mowing her lawn and felt she had the right to keep the bike.
To Vicki’s dismay, Samantha effectively breached the oral contract they two agreed upon. However, after a few weeks, Vicki remembered two important things. First, she wrote the contract in an email and sent it to Samantha, who wrote back, “I accept.” Second, her friend Mark was in the office that day, and he witnessed the agreement and saw the two women shake hands.
Vicki contacts a contract lawyer and consults with him regarding the case details. Based on the email’s written evidence and Mark’s testimony as a witness, the attorney informs Vicki that she has a strong chance of winning the case in a court of law. Unfortunately, Samantha reneged on the deal by refusing to mow the lawn and holding up her end of the deal. Since Samantha violated the terms of the verbal contract, Vicki has the right to seek monetary damages. The bike was initially priced at $4000, and Vicki’s lawn is now overgrown—she will need to pay a landscaping company to take care of it. Vicki’s research shows that the bike is worth at least $4000.
Where Do Witnesses Fit In?
Witnesses can come in handy when attempting to decipher the details of a disputed verbal contract. Witnesses can either be the contract’s parties or third parties present when the parties created the agreement.
Witnesses can provide testimonies regarding what they remember about the deal, whether they were indirectly part of it or not. Sometimes, a witness did not know they were privy to the agreement, but an accurate and unbiased testimony can quickly change the case’s outcome.
If Mark agrees to provide testimony in Vicki’s case, her claim as the plaintiff will be much stronger. Fortunately for Vicki, she also has an electronic “paper trail,” represented by her email exchange with Samantha. Vicki’s attorney knows that oral contracts can be challenging to prove, but he also knows that he has two elements of convincing evidence to use.
Figuring out the logistics of a verbal contract can be challenging, and proving the details can be difficult and time-consuming. However, an experienced contract attorney can help both parties sift through the details and come to an organized, rewarding conclusion that leaves little doubt as to the reality of the case.
When Should Verbal Contracts be Used?
Generally, verbal contracts are optimal for simple agreements. For example, if two individuals trade a used washing machine for a dishwasher, chances are there are not too many details to hammer out. In addition, even when disputed, simple contracts usually do not require parties to go to court.
However, when agreements grow more complicated, they should be written down whenever possible. Then, when the involved parties cannot remember the details of the agreement or cannot agree on the details, more complicated verbal contracts can dissolve when scrutinized in a court of law.
We recommend putting even rudimentary contracts into writing. This way, if there is a contract dispute, it is easy to return to the agreement’s finer points and protect those involved.
Vicki’s attorney resolved Samantha and Vicki’s situation, earning Vicki the settlement she deserved. Ultimately, Samantha kept the mountain bike but paid Vicki $1000 for the rest of the bike’s price and $1000 for lawn care. The two women still work together but are not friendly, and they probably will never enter into another verbal contract together again.
When Should I Contact a Contract Attorney?
If you are involved in an oral agreement dispute in California, contact the experts at Nakase Wade for a free consultation. Our experienced attorneys will help you quickly get to the bottom of the conflict and fight for the correct resolution to your situation.
We understand the often-challenging nature of verbal agreements and have helped many clients make sense of their oral agreements s in the past. Our attorneys will be able to provide helpful advice concerning the nature of the contract, and we will offer the first consultation for free. Contact Nakase Wade today.
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