Oral Contracts & The Statute of Frauds- Is The Agreement Binding?

There is a widespread misconception that verbal contracts are unenforceable. However, in California, a verbal contract with another party can still be valid and binding. In some cases, a signed document is not required.

However, if a signed written contract exists, any disagreement between the parties may be easier to resolve. For a court to enforce a verbal contract, each party will have to try to prove two things:

• Their version of the terms of the deal is correct
• Both parties agreed to those terms

Proving these are true could involve pricey litigation and an extensive discovery process. That’s why it’s advisable to have an attorney draft any contractual agreement. A written contract can help alleviate the “he said, she said” nature of oral contract disputes.

How to Prove the Terms of an Oral Contract

A party can prove that an oral contract is in place and the nature of the terms in a few ways. Some options include:

• Gathering eyewitness testimony
• Looking at the actions taken by both parties after the verbal agreement
• Providing documentation in the form of emails, text messages, invoices, and receipts
• Showing the oral contract is a standard practice or industry norm

Statute of Frauds

Not all contracts can be verbal. California has a Statute of Frauds to prevent deception and fraud. California Civil Code Section 1624 states that certain types of contracts must be in writing to be legally binding.

These documents must include:

• A description of the “subject matter” of the agreement
• The primary conditions of the deal
• The signatures of the parties

These requirements may vary with the sale of goods under the Uniform Commercial Code. The terms should include the price and quantity of the goods sold to ensure the contract is enforceable. Only the “party to be charged” may need to sign the document.

When Does the Statute of Frauds Apply?

There are seven primary situations in which the Statute of Frauds requires a written contract:

• The agreement will not be performed within one year.
• The agreement is a promise to answer for the debt of someone else.
• The agreement is for the sale of real property or a lease of longer than one year.
• The agreement authorizes or employs someone to purchase, sell, or lease real estate for longer than one year.
• The agreement will not be performed during the lifetime of the promisor.
• The agreement is for the payment of debt secured by a mortgage or deed of trust.
• The agreement is for a loan exceeding $100,000 made by a person in the finance industry.

In addition to these seven cases, some other agreements may also require written contracts to be legally binding. They include agreements “made in the consideration of marriage” and those made for the sale of goods valued at $500 or more.

Exceptions to the Statute of Frauds

There are a few exceptions where a verbal contract may be binding even if the Statute of Frauds says it should be unenforceable.

One of the most common is if one party suffered losses by relying on the oral contract. The injured party must prove they relied on the verbal promises made by the other party and that they suffered losses because of it.

Another possible exception is when one party provided “specially manufactured goods” under the contract. A third possible exception is when one party “partially performed” what the agreement required.

Lastly, there may be an exception if both parties are merchants rather than a business and consumer.

The Benefits of Written Contracts

While oral contracts can often be enforceable, written contracts have additional benefits. Some of the key benefits of written contracts are:

• Clarity and Precision – Writing down the contents of an agreement in a legal document can reduce confusion. If there’s ever a question about the scope of the agreement, the written contract serves as proof. It eliminates the majority of the ambiguity surrounding oral agreements.
• Proof of Agreement – What happens if one party denies making an oral agreement? That’s much harder to do when there is a physical (or digital) copy of the signed contract. This can help with contract enforcement.
• Modification and Amendments – Sometimes, the scope of an agreement needs to change. A written contract helps to document what these changes are and when the changes were made.
• Professionalism – By signing a written contract, both parties can show their commitment to the agreement. Such a contract can also be the foundation for a long-term relationship between the two parties.
• Legal Requirements – Written contracts comply with the Statute of Frauds. Unless the contracts outlined within that statute are written, they may not be enforceable under California law.

California Business Law & Contract Lawyers

Seek advice from an experienced business law and contract attorney at Schneiders & Associates to draft your agreements. Our attorneys can help ensure your contracts are legally enforceable. We can also evaluate a verbal agreement that you may be trying to enforce.

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