Are Oral Contracts Legally Binding?

One question business owners ask all the time: can an oral agreement actually be enforced? Most people assume the answer is no — they’re hung up on “get it in writing.” But that’s not quite true. Oral contracts can be enforced, as long as they don’t fall under the statute of frauds.

An oral contract can be enforced against the other party (or parties) to the agreement, provided it doesn’t violate the statute of frauds. The statute of frauds requires that certain types of contracts be in writing:

• Any promises made in connection with marriage
• Contracts that cannot be completed in less than one year
• Contracts for the sale of land (leases generally need not be covered unless they’re a year or more in length)
• Promises to pay an estate’s debt from the personal funds of the executor (promises to pay such debt from the estate’s funds are not subject to the statute of frauds)
• Contracts for the sale of goods above $500
• A surety — a contract in which one person promises to pay the debt of another person

What a Written Contract Actually Requires

The statute of frauds doesn’t require an elaborate document. To satisfy the requirement of a signed writing, the document need only:

• Be in writing — whether a quick note or a bullet-point list, it will suffice
• Identify the subject of the contract in an easily understood manner, such as referencing real estate by its address or describing the make and model of a product (avoid nicknames and cryptic identification)
• Spell out the essential terms — including the exact nature of the goods or services and the agreed price or other consideration
• Ideally be signed by both parties, though only the party being required to do something by the contract is required to sign it

Why You Should Always Get It in Writing

Other oral contracts can be enforced without being in writing. Despite that, whether a contract is required to be in writing or not, you should always aim to get it written down and signed. A contract not only proves the agreement exists, but specifies the terms — conditions on performance, prerequisites, minimum standards, and cost. These details protect both parties, because they eliminate debate if a disagreement ever arises. Proving an oral agreement can be difficult if neither party has begun performance and there are no written references to the agreement.

When Even Unwritten Contracts Get Enforced

In some cases, even contracts that are required to be in writing will be enforced due to special circumstances — generally involving partial performance. Partial performance may prove the existence of an unwritten agreement: for example, where one party has rendered payment, whether full or partial, for goods or services to be provided by the other. If no agreement existed, what would be the purpose of the payment? Whether or not a writing was required, partial performance will likely result in enforcement to prevent unjust enrichment.

Unjust enrichment is another concept used to argue an agreement existed. It focuses on whether one party benefited from the actions of another without compensating them. Consider a painter hired to paint a homeowner’s house. If no written contract exists but the painter paints the house, the homeowner’s failure to pay would be unjust enrichment — an unfair benefit, leaving the homeowner with all the benefit (a painted house) and none of the burden (the cost of the service).

Whatever your situation, it’s best to contact an attorney to determine whether you’ve formed a valid contract or have any obligations.

Frequently Asked Questions

Are oral contracts legally binding?

Often yes. An oral contract can be enforced as long as it doesn’t fall under the statute of frauds, which requires certain agreements to be in writing. The challenge is usually proving the terms without a written record.

What contracts must be in writing?

Under the statute of frauds: promises connected with marriage, contracts that can’t be completed within a year, sales of land, promises to pay an estate’s debt from personal funds, sales of goods over $500, and suretyship agreements.

Can a verbal agreement be enforced if work already started?

Often yes. Partial performance — like payment made or work begun — can prove an agreement existed and lead a court to enforce it, even when a writing would normally be required, to prevent unjust enrichment.

This article is general information from Accord & Shield Legal, PLLC and is not legal advice. Reading it does not create an attorney-client relationship. For guidance on your specific situation, please consult a qualified attorney.