Definition
An oral contract refers to a legally binding agreement that is spoken rather than written. It involves at least two parties agreeing to certain terms and conditions verbally. Though valid, oral contracts can be difficult to enforce due to lack of tangible evidence compared to written contracts.
Key Takeaways
- An oral contract, also known as a verbal agreement, is a form of contract where the terms and conditions are spoken and agreed upon by the participating parties, rather than being written and signed.
- Despite being legally binding as a formal agreement in many jurisdictions, proving the terms and reliability of an oral contract can be challenging due to the lack of physical evidence, thus, it is less enforceable compared to written contracts.
- The credibility of an oral contract greatly relies on the honesty and integrity of the parties involved. Any miscommunication or misunderstanding can lead to disputes. Thus, for significant financial matters, it’s generally recommended to use written contracts.
Importance
An Oral Contract refers to an agreement or contract that is spoken and agreed upon by the involved parties, rather than being documented in written format.
Its importance lies in its legal validity and enforceability, given that all essential elements of a contract such as offer, acceptance, consideration, and mutual assent are present.
Oral contracts can provide flexibility and convenience, especially in informal or simple business transactions.
However, it’s crucial to note the potential difficulties with oral contracts, including proving its existence or terms in a dispute, which is why many prefer written contracts for significant financial or business matters.
Furthermore, certain agreements, like those involving real estate, must be written to be legally enforceable as per the Statute of Frauds.
Explanation
An oral contract serves the primary purpose of providing a flexible, quick, and informal agreement system between parties in specific transactions. Generally used for personal dealings, agreements, and small business transactions, oral contracts can expedite business operations as they do not need paperwork or formalities.
For example, if a person purchases food from a vendor, they quickly agree on the price and the vendor gives the buyer the food – this is a simple form of an oral contract. Although they might lack the tangible accurateness of written contracts, oral contracts are especially useful when entering into agreements where immediate confirmation is required.
However, while oral contracts can often simplify transactions, it is crucially important to note that their enforcement and legality can be complex due to their inherent lack of physical evidence. This is the reason why in handling significant transactions, especially in finance, law, real estate, or any other sectors involving substantial values and sensitive details, written contracts are predominantly used.
In essence, the usage of oral contracts is usually confined to situations where the stakes are relatively low, thereby enabling transactions to occur more quickly and informally.
Examples of Oral Contract
Job Offer: A simple example is a job offer. Assuming you’re offered a job, and the salary, expectations, and terms of employment are all discussed verbally. If you accept the offer, you have an oral contract. If your employer doesn’t keep up their end of the agreement, such as paying you the agreed salary, this could be a breach of the oral contract.
Buying a Car: If you’re buying a car from a private seller and the seller verbally says he’ll sell you the car for a certain price and you agree to the terms. The oral contract is formed once you agree on the terms and conditions related to the sale of the car.
Landlord and Tenant Agreement: A landlord may make a verbal agreement with a tenant on the rent amount, duration, and other conditions of the lease. If both parties agree on these terms, then an oral contract is formed. This form of agreement is legally binding; however, in many jurisdictions, lease agreements need to be in writing when they are for more than a year.
Frequently Asked Questions: Oral Contract
What is an Oral Contract?
An oral contract is a type of business contract that’s outlined and agreed to verbally, but not written down. Despite not having a physical document that outlines the terms of the agreement, an oral contract is legally binding in most jurisdictions. It includes all the elements of a standard contract, including offer and acceptance, consideration, intention, and capacity.
Is an Oral Contract legally binding?
Yes, oral contracts are legally binding in most jurisdictions. However, without written documentation, they can be difficult to enforce. Some jurisdictions require certain types of agreements to be in writing. For example, agreements related to real estate or terms exceeding one year must usually be in writing to be enforceable.
What are the pros and cons of an Oral Contract?
The advantages of oral contracts include the speed of making agreements, less formality, and flexibility. However, the disadvantages include difficulty in proving the contract’s existence or terms and susceptibility to fraudulent alterations of the agreed terms. Also, oral contracts for certain subject matters, like real estate, must be in writing to be enforceable according to the statute of frauds.
How can you prove an Oral Contract in court?
Proving an oral contract in court can be complex. You may have to provide evidence like emails, text messages, or witnesses who were present when the agreement was made. You can also argue oblique evidence like postal correspondences or taking actions that align with the terms of the alleged oral contract. However, the specifics can vary significantly based on the jurisdiction and the nature of the agreement.
Related Entrepreneurship Terms
- Verbal Agreement
- Implied Contract
- Contract Enforcement
- Legal Obligations
- Breach of Contract
Sources for More Information
- Investopedia – A leading source for financial education and resources online. They offer straightforward definitions and explanations of complex financial terms and principles, including oral contracts.
- Nolo – A website dedicated to providing comprehensive legal resources, many of which are free. They cover a wide array of categories including contract law.
- Cornell Law School Legal Information Institute – A trusted source that provides access to U.S. federal and state law, constitution, court opinions, and legal terms definitions, including details about oral contracts.
- Business Dictionary – A user-friendly business and investment dictionary that includes a simple and straight-to-the-point definition of an oral contract and other related terms.
