What is an oral contract?
An oral contract is a type of commercial contract that is described and accepted through oral communication, but not in writing. Although it can be difficult to prove the terms of an oral contract in the event of a breach, this type of contract is legally binding. Oral contracts are often mistakenly called verbal contracts, but a verbal contract is actually any contract since all contracts are created using language.
Understanding oral contracts
Oral contracts are generally considered to be valid like written contracts, although this depends on the jurisdiction and often the type of contract. In some jurisdictions, certain types of contracts must be drafted to be considered legally binding. For example, a contract involving the sale of real estate must be written to be legally binding.
In some cases, a verbal contract can be considered binding, but only if it is evidenced by a written contract. This means that once the oral contract has been concluded, the parties must note the conditions of the contract. Other evidence that can be used to strengthen the enforceability of an oral contract includes the testimony of witnesses to the creation of the contract. When one or both parties act on the contract, this can also be interpreted as proof of the existence of a contract. In addition, letters, memos, invoices, receipts, emails and faxes can all be used as evidence to support the enforceability of an oral contract.
A famous example of the applicability of an oral contract occurred in the 1990s when actress Kim Basinger renounced her promise to star in the Jennifer Lynch film. Helena Boxing. A jury awarded the producers $ 8 million in damages. Basinger appealed the decision and subsequently settled for a lower amount, but not before filing for bankruptcy.
When oral contracts collapse
Oral contracts are best used for simple agreements. For example, an oral contract to exchange a used lawn mower for a used dryer does not require a lot of detail. The simpler the contract, the lower the chances that the parties involved will need to appear in court. But more complex contracts, such as those for employment, should generally involve written contracts. Complex oral contracts are more likely to collapse when subjected to court review, usually because the parties cannot reach agreement on the more delicate points of the agreement.