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What Are Oral Contracts?

Agreeing by word and a handshake is a form of oral contract.
Oral contracts do not typically require a signature.
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  • Written By: Alexis W.
  • Edited By: Andrew Jones
  • Last Modified Date: 18 October 2014
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Oral contracts are spoken agreements. An oral contract, like any contract, must contain consideration. In other words, the two parties must each exchange promises, or exchange something of value.

A contract, in general, is a legal agreement to perform certain actions or behavior. Contracts are legally enforceable promises. Failure to fulfill the terms of a contract is considered a breach, and the court can impose damages for breach, or require the parties to follow through with the terms of the contract.

In most situations, oral contracts are treated just as any other contract. The promises between the two parties are enforceable by a court. It can, however, be more difficult to demonstrate to the court exactly what the terms of the contract were when the contract is an oral contract. Still, if there is proof that an oral contract existed, the court will enforce it.

Oral contracts can have written components as well as oral ones. For example, two parties can make an oral contract and then write down on paper that the oral contract was made. Because the terms of the contact were agreed upon only aloud and not in writing, the contact is still considered an oral contract.

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Although oral contracts are generally enforceable, there are certain exceptions to that rule. These exceptions were created by the Statute of Frauds, and by the Uniform Commercial Code. Both the Statute of Frauds and Uniform Commercial Code are legal doctrines that stipulate that certain types of agreement must be in writing to be valid.

The Statute of Frauds dictates that six individual types of contracts must be in writing to be valid. These types of contracts include a contract of marriage, a contract which will take longer than one year to perform, a contract transferring or selling land, a contract by the executor of a will to pay the estate's debt with his own money, a contract for a sale of goods that exceeds a certain value, and a contract where one party guarantees another's debt, or acts as a surety. The acronym MYLEGS is used to help parties remember the types of contracts that must be in writing under the statute of frauds.

The Uniform Commercial Code, which is a collection of laws and rules for businesses that nearly every state has adopted in whole or in part, also mandates that certain contracts be in writing. Under the UCC, contracts for the sale of goods for over $500 must be in written form. Oral contracts for the sale of goods over this amount will not be enforced.

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