Is An Oral Contract Enforceable?

Samuel Goldwyn once said, "An oral contract isn't worth the paper it's written on." Sam had a point - it's often very hard to establish with 100% accuracy whether a contract actually exists, let alone the terms of the contract, if there is no written point of reference. And if you can't prove you have a contract, how can you enforce it?

How do you prove an oral contract exists?

If both parties admit, firstly, that there is a contractual relationship between them and secondly, what the terms are that were agreed upon, then an oral (or verbal) contract can be established and enforced to the extent that those terms can be verified. This of course presupposes that the parties are giving accurate and truthful representations about the agreed-upon terms.

If there were any other persons who were present at the time the contract was struck (such as employees or family members), those persons can act as witnesses to verify the existence of the relationship. Even if there is no signed contract between the parties, there is very often other documentation to support the existence of the contract, such as correspondence (letters or emails), notes, supplementary agreements or even draft contracts which were never signed.

The course of conduct between the parties can also help to establish that there is a contractual agreement. If the parties have acted in a certain manner which supports the assertion of a contract (for example, services were provided by one party to the other in exchange for payment), that is also evidence that a contract exists.

If I can prove the oral contract exists, is it now fully enforceable?

To be legally enforceable any agreement (whether oral or written) must meet certain requirements. It must contain essential contractual terms; those terms must be sufficiently certain to allow for enforcement; and no essential terms may be left on the table for future agreement.

Different countries approach the subject differently. For instance, in Canada a verbal contract is enforceable if you can prove the existence of a contract and its terms. Under US law, an oral contract is enforceable unless its subject matter falls within the statute of frauds, which requires certain contracts to be in writing. The Uniform Commercial Code governs the enforceability of oral contracts in any purchase and sale agreement involving a commercial merchant. British law allows for binding and legally enforceable oral contracts, except in certain circumstances. In all 3 countries, a written agreement is required in transactions involving the purchase, sale and mortgaging of real estate, personal guarantees, and transfers of securities (although there are some exceptions to this rule).

Whether or not the law requires it, it is always prudent to put your agreement in writing. A written contract provides clarity, confirms that the parties have the same understanding of the relationship, establishes the rights and obligations of the parties, and provides protection and security in the event of a default or dispute. It can even reduce the potential for legal claims, because it provides a clear reference point as to how the parties have agreed to act and cooperate throughout the performance of the contract and reduces the potential for misunderstanding and miscommunication.