An oral contract is one that has not been committed to writing. Oral contracts, while difficult to prove, are enforceable. Some contracts must be in writing in order to be enforceable such as the contract for the sale of real estate. The statute applying to such contracts is known as the Statute of Frauds.
If a person agrees to do something, agrees not to do something he has a legal right to do, sells something, or buys something, but the terms of an agreement have not been placed in writing, then it is likely an oral contract has been formed.
Elements of an Oral Contract
The basic elements of contract formation must exist for an oral contract to arise: offer, acceptance, and consideration.
An offer is a verbal promise to do something or a promise not to do something that the offeror (the person making the offer) has a legal right to do. For example, if Mr. Smith offered to sell a rug to Mr. Brown for $500, then Mr. Smith has made an offer.
A person to whom an offer has been made (the offeree) has the option of accepting the offer. In the above example, if Mr. Brown agreed to buy the rug for $500, acceptance has occurred.
The parties to a contract must exchange something of value, or consideration, in order for a contract to be valid. In the above example, Mr. Smith's consideration is the provision of the rug to Mr. Brown. Mr. Brown's consideration is the payment of $500 in exchange for the rug.
When a person responding to an offer attempts to negotiate the terms or pricing, the original offer is considered rejected. The new terms are a counter-offer. If the original party making the offer accepts the new terms, then the counter-offer is accepted and a contract formed.
Statute of Frauds
The Statute of Frauds is a law that provides that the contracts must be in writing under certain circumstances. For example, the sale for real property must be in writing. Contracts that will take longer than one year to perform must be in writing. Contracts in which the debt of one person is assigned to another must also be in writing.
Proving an Oral Contract
Proving an oral contract is difficult, but not impossible. A party wishing to prove the existence of an oral contract should present corroborating evidence to the court, such as a check, photographs, letters, receipts, and the testimony of neutral persons regarding the contract.
An oral contract arises if the elements of offer, acceptance and consideration have been met. Some contracts must be in writing to be enforceable. A party wishing to enforce an oral contract must prove that one existed through credible evidence.