Should We Put This in Writing? Enforceability of Oral Contracts

Oral ContractsCommon public perception is that no legally binding contract exists between two or more parties who engage in a “handshake” deal absent a written agreement.  However, a court may rule that oral contracts are enforceable.  The party seeking to enforce the contract must establish three basic elements:  an offer, consideration, and acceptance of the offer.  Consideration is either a benefit given or to be given to the person who makes the promise [or some other person] or a detriment experienced or to be experienced by the person to whom the promise is made [or some other person].  Where the contract provides for mutual promises, each promise is a consideration for the other promise.

The primary hurdle with enforcing an oral contract is proving its contents.  Ordinarily, the only parties with knowledge of the facts and circumstances surrounding the agreement are the parties who entered into the oral contract.  Therefore, there are usually not any third parties available to affirm the oral contract.  Accordingly, a court will weigh the credibility of the testimony from each party involved in the alleged contract.  The court can also analyze the communications between the parties who allegedly entered into the oral agreement.  Specifically, the court can examine any correspondence, such as e-mails and text messages, which might assist in clarifying the intent of the parties and terms of the contract.

There are certain exceptions to the enforceability of oral contracts.  For example, a contract involving the sale of real estate must be memorialized in writing.  Additionally, any agreement contemplating a lease of real property for a period of longer than one year requires a written contract.  Furthermore, any agreement concerning performance of services lasting more than a year must be reduced to writing.

Written contracts are an excellent way of safeguarding one’s interests and preparing for contingencies and remedies in the event of a legal dispute.  Importantly, a written agreement can provide for payment of reasonable attorney’s fees should a party prevail in litigation under certain situations.

Prior to entering into any contractual obligation, please call Telpner Peterson, LLP, today at (712) 325-9000 for legal advice regarding protecting your interests by utilizing a properly written contract.

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