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By Ted Schneider, Esq.

There is a widespread misconception that verbal contracts are unenforceable.  A contract made orally with another party, without embodying the particular terms in a signed writing, can still be valid and binding. However, without a signed writing, any disagreement between the parties concerning the deal terms will create multiple problems for both parties. In order for a court to enforce a verbal contract, each party will have to try to prove its version of the terms of the deal, and that there was in fact a meeting of the minds of the parties. This could involve pricey litigation and an extensive discovery process. Therefore, it is advisable to have an attorney draft any contractual agreement.

Moreover, according to the Statute of Frauds, there are certain contracts that must be in writing in order to be legally binding. This includes: (i) contracts for the sale of land or real estate, (ii) surety agreements (in which one person guarantees to take over another’s contractual obligations), and (iii) agreements that cannot be performed within one year. Other agreements that must be written to be legally binding include agreements “made in the consideration of marriage,” and those made for the sale of goods valued at $500 or more. If the requirements for contractual validity are not met, either party runs the risk of the other party rescinding the contract by declaring it void.

In an effort to prevent deception and fraud, the Statute of Frauds requires specific written terms for a contract to be valid. The Statute of Frauds requires the document to include a description of the “subject matter” of the agreement, the primary conditions of the deal, and the signatures of the parties. These requirements may vary with the sale of goods under the Uniform Commercial Code, where a signature only by the “party to be charged” (rather than both parties) may be sufficient. For a sale of goods, the terms should include the price and quantity of the goods to ensure the contract will be enforced.

Often, even if the contract is unenforceable under the Statute of Frauds, it may be saved if one party suffered damage or cost by relying on the oral contract (i.e., the verbal promises made by the other party), and if the injured party can prove this reliance in court. Likewise, an exception may exist if “specially manufactured goods” were provided under the contract or one party “partially performed” what was required by the agreement. The outcome may also vary if two merchants were the contracting parties, rather than a business and a consumer.

Seek advice from an experienced business law and contract attorney at Schneiders & Associates, LLP to draft your agreements to ensure they are legally enforceable, or to have one our attorneys evaluate a verbal agreement that you may be trying to enforce.

About the Author
Theodore J. Schneider practices in the areas of business and corporate transactions, employment law counseling, municipal and public law, real estate and land use, and homeowner associations. Ted began his legal career in 2002 when he joined the Los Angeles office of Gibson, Dunn & Crutcher, L.L.P. before relocating to Ventura County to join his father in practice.