Draw the Law: Contracts Part IV, Oral and Written Contracts

I finally come to a topic that many of you are familiar with, but probably still have questions or misconceptions about: oral contracts.

Are Oral Contracts Enforceable?

Yes, by the very nature of being a contract (remember from the prior weeks the definition of a contract) oral contracts are enforceable. The real problem comes from proving what the terms of the contract were because if you are depending on a court enforcing those terms remember it has to hear a whole series of he said, she said arguments.

While negotiating can go back and forth, if the two parties agree on something orally, usually the contract is amalgamation of what both parties said.

Is it Dangerous to Ignore Oral Contracts?

Yes, most definitely. Even though they are harder to prove and enforce, a court will look to evidence where it is available. Mainly, this type of evidence is called course of conduct.

Example: Let’s say a content writer orally agrees to produce for website a blog post every 1st and 3rd Tuesday of the month with the website’s owner. The website owner agrees to pay the content writer $300.00 per month. They shake on it and for seven months the content writer meets these deadlines and the website owner pays. Let’s say for argument sake they do not e-mail each other or have any other piece of writing that evidences this agreement other than the postings and the website owner payments.

Now, let’s say after those seven months one of them does not perform as they promised. Either the content writer stops posting or the website owner stops paying. A lawsuit is filed and now a court must figure out if there is a contract.  This is where a course of conduct argument will be made to prove that a) there was a contract and b) every time the content writer wrote he got paid.

Every time one action happened, it was followed by another - it would seem clear that there was at the very least a course of conduct of writing for payment to an outside observer (i.e. a court).

Now, back to the Real World . . .

We use other pieces of writing to evidence that there was a contract even when there is no written agreement, which is why it is good to send and keep invoices, receipts, etc . . .

Notice, that I excluded e-mails, receipts, payment stubs, and the like from the example. Even if the original contract was oral, generally speaking, we always have a lot of actions and pieces of evidence that show what the contours of the agreement were. It may never be precise, but that is where the court steps in to try and figure out what the contract was, but that is why attorneys insist on substantial agreements be in writing.

Bottom line: do you want to define your contract or do you want a court to do it for you? 

Are there Some Unenforceable Oral Contracts?

Yes, there are a series of contracts, due to their subject matter, that MUST be in writing. While it depends on what state you are there are the general categories of subjects that MUST be in writing and signed by the parties who are obligated to keep the promises:

  1. Guaranty is a when someone else promises to be liable for the debt if the original debtor fails to pay (this is what banks use to pierce an entity’s limited liability and get at an owner’s personal assets);
  2. A promise that cannot be fulfilled within a year of when the promise was made;
  3. Anything involving land, an interest in land (including leases), or sale of real estate;
  4. A promise for the sale of goods worth equal to or more than $500.00;
  5. Promises to be executed after death, such as in a will or trust;
  6. The promise to sell stocks and/or bonds.

These are the six things that require a contract to be in writing to be enforceable: (1) guaranties; (2) over a year promises; (3) land matters; (4) things worth equal to or over $500; (5) promises executed after death; and (6) sale of bonds and/or stocks.


Lawyers Drafting or Reviewing Contracts

Remember that attorneys are wordsmiths. We write for a living. Therefore, if you have a sophisticated transaction consider having a lawyer draft it or for you or at the very least you draft it and have them review it and point on things. Oral contracts may be fine in some situations, but in today’s modern economy that is becoming rare. See you next time!

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*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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