Are Oral Contracts Still Contracts?

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Are Oral Contracts Still Contracts?

"I don't know what to do. We agreed about this in a conversation, but we didn't sign any contracts." This is a common concern that clients come to me with. Many people mistakenly believe that an oral agreement is meaningless. Fortunately, that is not the case and having an oral contract is still a contract. However, reader beware, contract law is very complicated for a few reasons: 1) contract law has multiple bases, specifically statute and caselaw (in other words, you have to look to multiple places to "figure out" the law), 2) it is open to a lot of interpretation, and 3) the law surrounding a specific contract can change based on the subject matter of the contract (eg, consumer contract, construction contract, or real estate contract).

So what are your options if you have an oral contract? Your options are the largely same as if you had a written contract. You can seek to enforce it through a lawsuit, if necessary. However, there are some caveats. Firstly, there are some contracts that are required to be in writing because of the law known as the Statute of Frauds. The Statute of Frauds calls for certain types of contracts to be in writing such as for the sale of land or a contract that involves a time of more than one year. Further, there is the Uniform Commercial Code that requires writing for the sale of goods over $500.00. These statutes are still pretty lax and do not require a formal contract but simply a "memorandum" or "writing." This could simply be an email exchange. Additionally, courts actually do not like enforcing the Statute of Frauds and have created the well-established exception to the Statute of Frauds if the party seeking to enforce the oral contract has performed her part of the agreement. To be clear, there is a lot more to this area of law, which can get complicated and vary greatly case-by-case, so it's important to speak with an attorney if you find yourself in this situation. The point here is simply that a contract can exist and be enforceable, even if it is not in writing.

The second caveat is the differing statute of limitations between oral and written contracts. In Illinois, a statute of limitations for an oral contract is five years whereas for a written contract, it is ten years. Those are still pretty generous statute of limitations, but it is important to be aware of these time constraints.

The last caveat is more of a practical one than a legal one. Proving a written contract can be a lot more easily since the parties have signed, or otherwise acknowledged the agreement. In other woods, proving that an agreement existed is much easier. In an oral contract scenario, you may be dealing with a he-said-she-said scenario or having to prove the agreement through circumstantial evidence such as witnesses or the transfer of money.

Contrary to common belief, an oral contract is enforceable. Although there are some limitations and practical constraints, if you find yourself part of an oral contract, whether you are being sued or need a remedy, enforcement of the contract is absolutely an option. As stated above, contract law is complicated and it is always best to consult a local attorney to explore your options or defenses.

If you think you have a contract dispute (oral or written), give my office a call to schedule a consultation at 630-517-5529.