Oral Contracts in the United States

Oral contracts are contractual agreements made entirely on the basis of spoken communication (Stim, 2016). This is dissimilar to a written contract, where the existence of a contractual agreement is evidenced by a written document. Whereas written contracts are the norm, oral contracts are fairly commonplace. Indeed, many powerful individuals have participated in handshake deals. However, there is often controversy over whether oral contracts are legally enforceable. This paper discusses the concept of oral contracts in the U.S. and explains the extent to which they are legally binding. Attention is also paid to the notion of implied contracts.
Concept of Oral Contracts in the United States
In the U.S., contracts for the sale of goods or services and commercial transactions are governed by the Uniform Commercial Code (UCC) (Tepper, 2014). The UCC stipulates provisions for the enforceability of oral contracts. As there is no federal law governing contracts, the UCC provides guidelines for states to follow when dealing with contracts. All 50 states as well as the District of Columbia and U.S. territories have adopted the code, albeit with varying levels (Klass, 2010). For instance, some states like Louisiana have not adopted all the provisions of the code.
The UCC acknowledges oral contracts as legally binding agreements expressed in spoken communication as opposed to writing. The code provides that only certain types of contract need to be in writing (Tepper, 2014). Indeed, the UCC mandates written contracts in only a few circumstances. These circumstances are mainly stipulated under Article 2 of the code. Essentially, the UCC grants that contractual agreements are generally unwritten. Even so, written contracts remain far more popular than oral contracts.
Are Oral Contracts Enforceable?
Contrary to common belief, oral contracts could be legally binding agreements. The contracts are enforceable so long as there is sufficient evidence to prove their existence. Evidence in this case mainly refers to witnesses (Klass, 2010). If the plaintiff produces witnesses present during the generation of the agreement, the court can enforce the agreement. Evidence may also include supporting materials such as mails, memos, letters, and faxes exchanged between the parties. In addition to evidence, the court must be satisfied that other elements of contract formation were fulfilled. These include expression of offer, acceptance and consideration of the offer, intention to enter into a contractual relationship, capacity to enter into a legally binding agreement (in terms of age and mental capacity), as well as the legality of the underlying good or service (Stim, 2016).
Nonetheless, there is one exception to the enforceability of oral contracts – the Statute of Frauds. Originating from English Law, the statute was designed to prevent deception, especially in agreements involving high stakes or long performance periods (Tepper, 2014). As per the law, certain contracts must be in writing. These mainly include agreements involving the sale of real estate property, leasing of real estate property, transfer of property, and debt payment (McKendrick, 2014). Contracts exceeding a certain sum of money (varies across states), lasting longer than the life of any of the parties, or requiring long periods of performance (mostly more than one year) are also required to be in writing (Klass, 201). Generally, an oral contract will not be enforced if it falls within any of these categories. In all states across the U.S., with the exception of South Carolina and New York, the Statute of Frauds is applicable.
Even so, similar to most laws, there are exemptions to the Statute of Frauds. An oral contract falling in any of the above categories may be enforced if one of the parties partially conforms to its terms or if the complainant incurred loss as a result of relying on the promise made by the defendant (McKendrick, 2014). Nevertheless, for these two exceptions to apply, the plaintiff must provide evidence of loss suffered or partial compliance with the contract’s terms.
Whereas oral contracts may be enforceable, they have a major shortcoming – defining the finer details of the agreement is often difficult (McKendrick, 2014). For instance, an oral contract is unlikely to work for a lease agreement in large part owing to the complexity inherent in such an agreement. A lease agreement requires extensive definition of aspects such as general provisions, payment terms, obligations and rights of each party, remedies, dispute resolution, and adjustments to terms and conditions. Capturing such details in an oral contract is extremely difficult. Due to this challenge, oral contracts often work with simple exchanges, not complex exchanges requiring unambiguous description of every detail. This actually explains why the Statute of Frauds provides exemptions to the enforceability of oral contracts. Other challenges associated with oral contracts relate to difficulties in dispelling contract defects and the possibility of dishonesty on the part of all parties or one of the parties (Tepper, 2014).
Implied Contracts
While contracts generally require the evidence of writing or spoken communication to be legally binding, some contracts are neither written nor spoken. Such contracts are referred to as implied contracts (Klass, 2010). Basically, implied contracts are contracts that exist on the basis of assumptions, conduct of the contractual parties, or a relationship between the parties. An implied warranty is an ideal example of an implied contract. When a consumer purchases a product, the consumer assumes that the product will work as ordinarily required. For instance, a consumer purchases a refrigerator expecting that it will keep food fresh. When the consumer purchases the refrigerator, an implied agreement is created between the consumer and the seller. As a result, the consumer may take legal action against the seller if the refrigerator fails to fulfil its intended purpose. Other examples of implied agreement include receipt of medical services from a healthcare provider and purchase of food from a restaurant.
Implied contracts fall in two categories: implied in-fact contracts and implied at-law contracts (McKendrick, 2014). An implied in-fact contract is a contract in which obligations arise from the underlying facts or behaviour of the parties involved. For instance, when a person repeatedly mows their neighbour’s lawn and gets paid every time they lawn it, an implied contract is created such that the person providing the mowing services can seek court intervention if the neighbour declines to pay for the services at some point. In this case, the conduct of the two parties created a contractual relationship even though there was no written or oral agreement. An implied at-law contract is a quasi-contract created by some sort of relationship between the parties involved. A good example of an implied at-law contract is a case of a person choking in a restaurant. If a doctor sitting at a nearby table administers a service that saves the person’s life, the person is responsible for paying for the service if the doctor sends the person a bill. Irrespective of the form, implied contracts are primarily intended to promote fairness and equity (Stim, 2016). It is imperative to be aware of the existence of implied contracts.
Conclusion
Overall, understanding the extent to which an agreement is legally enforceable is crucial. This is especially because some contracts may not involve a written document, verbal communication, or both. All in all, unlike in written contracts, proving the existence of oral or implied contracts can be a daunting undertaking.


References
Klass, G. (2010). Contract law in the USA. The Netherlands: Kluwer Law International.
McKendrick, E. (2014). Contract law: Text, cases, and materials. 6th ed. Oxford: Oxford University Press.
Stim, R. (2016). Contracts: The essential business desk reference. 2nd ed. U.S.: Nolo.
Tepper, P. (2014). The law of contracts and the Uniform Commercial Code. 3rd ed. Boston: Cengage Learning.