A contract wherein the terms have been agreed upon through spoken communication is called an oral contract. There is no written document that exists in an oral contract, but there may be some form of physical evidence, such as a written acknowledgement by both parties that they have agreed to the contract.
In usual cases, the validity and enforceability of oral contracts is, in theory, equal to that of written contracts. However, state laws, such as Florida Law requires some types of contracts to be in writing or the acknowledgement of oral contracts to be in writing. As an example, in the Statute of Frauds, the contract of guaranteeing someone else’s debt is required to be acknowledged in writing.
Factors Determining Validity of Oral Contracts
1. Testimony of Witnesses
Having a third party during the inception of on oral contract is a fundamental way to prove its validity and existence. Third party witnesses can also testify in court, if need arises. The important consideration here is the ability of the parties to declare the terms of the agreement as they heard during the formation of contract.
2. Course of Conduct
The documented state of affairs between the two parties that enter into contract is referred to as the Course of Conduct.
As an example, when a verbal contract has been made among two parties regarding the sale of a piece of property – it is accepted by the buyer at first, but if they were to later refuse to buy the house if it were haunted. In this case, the deal has already been confirmed and acknowledged by both parties, that is, they have already entered into contract. If any party takes action suggesting that the oral contract was made, it is taken as an evidence for course of conduct. As a side note, the purchase of real property must also be in writing pursuant to Florida’s Statute of Frauds provisions as codified by Florida Statute 672.201.
3. Credibility of Individual Parties
Where the credibility of a party can be established in court, it can also be questioned. The witness of oral contracts has credibility much different from that of the contractually bound parties. In this case, the focus is on proving the credibility of the occurrence of any individual’s action or the passing of a statement by any individual
These three factors are integral to prove the mutual agreement of an oral contract. Disputes regarding oral contracts are likely to become difficult to prove if any of these three factors are absent.
Typical High-Risk Contracts
Even though oral contracts are reliable, certain types of contracts are high-risk and susceptible to fraud when made on oral terms. Written contracts are required in the following situations:
- Contracts that involve property transactions, that is – sale and purchase
- Contracts involving goods transactions over $500 (with certain exceptions)
- Contracts involving marital settlements or prenuptials
- Contracts that cannot be completed within a 12 months
Keeping these points in mind, the reliability issues associated with oral contracts can be minimized. Even though written contracts are preferred over the verbal version, the latter is useful in many situations. A proper understanding and careful use of oral contracts can help mitigate most problems. It is always advisable to let an experienced attorney review and prepare your contract needs to avoid prolonged and expensive disputes in the future.