What Is An Oral Contract?
Oral contracts are agreements made verbatim without any written documentation. It is otherwise known as “verbal agreements.” Accepting such agreements by law is common, although there may be exceptions on a case-by-case basis.
You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Oral Contract (wallstreetmojo.com)
In casual commercial settings, verbal agreements might result in contracts that are never recorded on paper. Verbal agreements can be broken just like written agreements. If one side doesn’t follow the terms of the agreement, there has been a breach. Oral agreements make it difficult to know what the parties have agreed on in such situations. A contract can also be in breach or turns invalid if the new law overrides the old one or the exchanged item no longer has the same value as it had at the original exchange.
Table of contents
- What Is An Oral Contract?
- Oral Contract Explained
- Requirements
- Examples
- Oral Contract vs. Written Contract (in points or as a table)
- Frequently Asked Questions (FAQs)
- Recommended Articles
Key Takeaways
- Oral contracts or verbal contracts are agreements formed through verbal communication and do not have written proof. In other words, promises and acceptance are made through spoken words.
- An offer, acceptance of the said proposal, lawful object, consideration for the said proposal, and parties’ ability to contract are some of the characteristics of an oral contract.
- An oral contract and a written contract differ from each other. The former is formed due to verbal communication, whereas the latter results from the carefully designed written agreement.
Oral Contract Explained
Oral contracts are composed of the words and actions used to express a promise from one party to another, and when that promise is accepted, it is seen to be a legally binding oral agreement. These contracts might be explicit or implied. They also have little evidentiary value because they are based on second-hand information.
Oral agreements are typically enforceable. However, people cannot completely use it to replace written agreements because certain contracts must be in writing to be enforceable under the Statute of Frauds. Furthermore, the enforceability of verbal contracts is subject to certain conditions. A written contract is something the parties involved can consult on as the project or deal progresses. It gives both parties protection and peace of mind and may aid in averting an expensive and time-consuming disagreement. Verbal contracts do not come with these advantages.
Requirements
Requirements of an oral contract include:
- A proposal or offer: An “offer” is the first component. A party makes an offer to another party when they recommend certain terms of an agreement. A reasonable person should be able to understand and be expected to abide by the terms of the offer if they are adequately explicit. Only those clauses that are material—or important—to the specific agreement must be present for the agreement to be enforceable. It often comprises clauses relating to the contract’s parties, the goods or services to be given, the date of the provision of such services, and the price.
- Acceptance of said proposal: There shall be a consensus among all sides after a proposal has been made by one of the parties and accepted by the other. The most fundamental principle of contract law is that the contract is legally binding only if the other party accepts the offer. It can be done verbally or in writing for most types of contracts.
- Lawful object (which is being dealt with): The purpose or object of the contract must be legal. Any commodities, transactions, or services that threaten a nation’s security will not hold up in court and are not recognized as contracts. It includes activities like smuggling and illegal dealings that compromise society’s integrity. Remedies, therefore, cannot be sought.
- Consideration of the said proposal: A contract isn’t legally binding unless both parties exchange something of value in anticipation of the deal’s completion. Something of value involves deals such as cash, goods, or services that have been exchanged for something else of value (or the promise to exchange such a thing).
- Parties can contract: The parties must be able to engage in a contract, which requires that they be of legal age and sound mind. In addition, the parties should voluntarily agree to the terms of the agreement without undue influence, coercion, duress, or distortion of the facts, provided they are both of sound minds.
Examples
Let’s look into some of the oral contract examples:
Example #1
Riya agrees to buy vegetables for a brunch party from a local vegetable vendor. There were no written agreements, but the vendor agreed to sell goods worth $250 by the day before the party. They also agreed upon the vendor delivering it to Riya’s house. It is an example of an oral contract, and there are terms agreed upon with the object or target being “purchase of vegetables,” along with the price, duration, etc., if in case the vendor doesn’t deliver to Riya’s house, it would become a breach of contract.
Example #2
Thelonious Monk’s estate filed a lawsuit against North Coast Brewing Co., Inc. (“North Coast”), a California corporation. The estate of Thelonious Monk owns the jazz legend Thelonious Monk’s name, image, and likeness. T.S. Monk verbally agreed to allow North Coast to use the THELONIOUS MONK name, image, and likeness exclusively for marketing and distributing North Coast’s “BROTHER THELONIOUS BELGIAN STYLE ABBEY ALE.” It was done in exchange for North Coast’s promise to donate a portion of BROTHER THELONIOUS BELGIAN STYLE ABBEY ALE’s sales proceeds to the Thelonious Monk Institute of Jazz.
However, Nort Coast went on to produce and sell other products, such as cups, hats, hoodies, mouse pads, signs, t-shirts, etc., featuring Monk’s name, image, and likeness. In response, Monk’s Estate wanted to revoke any previously granted licenses and stop them from using them any longer. In addition to asking for an injunction to stop North Coast from continuing to sell the ale and associated goods, Monk’s estate claimed trademark infringement and violation of Monk’s right to publicity. They also demanded an amount of money in damages.
One of the main issues in this argument is not whether or not the oral agreement can be enforced but rather what the parties first agreed to. The emphasis is on the difficulty of negotiating with an oral contract because there are no specific terms, a time frame, or other relevant details regarding the “share of sales proceeds.” Proving the terms of such contracts is also difficult because they are verbal.
Oral Contract vs Written Contract
| Points | Oral Contracts | Written Contracts |
| Nature | Exist in verbal form, which means they are agreed upon verbally, and written proof does not exist. | Written contracts are “written” in nature, meaning they are recorded as the deals are made. |
| Enforceability | Verbal contracts are enforceable in courts but are subject to certain conditions, such as legality and not belonging to the statute of fraud. | Written contracts are better enforced than verbal contracts as long as they fulfill all of the contract’s requirements. In addition, the terms of a contract can be better proven in a written contract. |
| Contract terms | The vagueness is present, as only the involved parties know them. | In the case of a written contract, the terms of the contract are specific, clear, and recorded in writing, which leaves little room for ambiguity. |
Frequently Asked Questions (FAQs)
As long as one can demonstrate in court that an agreement was formed in good faith, committing to an oral agreement is a good option. Oral contracts are legally binding, provided that the agreement is reasonable, conscionable, and equitable.
Verbal contracts can be supported by evidence such as e-mails, texts, faxes, phone calls, or recordings of meetings. Payment proof, such as canceled checks or transaction statements, can also be provided. Having witnesses testify there is another option. Additionally, the parties’ conduct may be used to support the agreement.
One of the disadvantages is the chance of disagreement about what was agreed upon. In addition, the chance that a party won’t be able to show the agreement’s validity or the terms of it in court makes it unlikely that the court would uphold the contract.
Recommended Articles
This has been a guide to what is Oral Contract. We explain its meaning, requirements, examples, and how it differs from a written contract. You can learn more about financing from the following articles –
- Voidable Contract
- Bilateral Contract
- Land Contract
This post first appeared on Free Investment Banking Tutorials |WallStreetMojo, please read the originial post: here
