Is an Oral Agreement Legally Binding?

It is true that certain agreements must be in writing to be enforceable. The statute of frauds requires that the following types of agreements be in writing: those involving real property, marriage, performance over one year, or the sale of goods over $500. If an oral agreement does not fall within one of the foregoing specified categories, it may be an enforceable contract.

It is significant to note that the statute of frauds does not cover services that cost more than $500. The final determination on whether an agreement falls under the statute of frauds falls with the courts. Many courts follow the Uniform Commercial Code’s definition of the statute of frauds.

Before you start making “handshake” deals, remember that you must still have the ability to prove the existence of a contract in court. Having several witnesses to the oral agreement is an effective way to prove the oral agreement took place. However, having your handshake deal be put into writing is the wiser and safer decision.

What if you made an oral agreement that was not witnessed by anyone else? If you immediately took action on your half of the deal, it can be convincing evidence of the contract. Additional proof is if the other party began acting in compliance with its obligations under the agreement. You will also want to keep copies of any correspondence between you and the other party that strengthen your claim. This includes emails, letters, receipts or any other documentation that establishes an agreement was reached between you and the other party.

Of course, there is no way of knowing if you will be able to prove the oral agreement was made, so there is always inherent risk. In order to prevent any uncertainty, get the agreement in writing. Even if you believe it is a simple deal and there is a slim chance that anyone will have to prove anything in court, having a one-page contract is better than nothing. It doesn’t have to be a complex agreement or a 50-page contract to take the doubt out of whether or not you can prove an agreement was reached, it just has to be in writing.