Contracts play an integral role in all transactions that happen in different contexts. According to Petty (2015), contracts facilitate voluntary exchanges that constitute business dealings, including hiring of employees, formation of business, and selling of products. The US Legal (2019) observed that ease of enforcing any form of contract depends on proof of the existence of the contract or its terms. Contracts comprise of four major elements: formation, interpretation, remedies, and enforcement. Oral contracts, which refer to agreements made using spoken words with no documentation, present significant enforcement challenges. By virtue of their lack of proof of formation, oral contracts are difficult to interpret, remedy, or enforce. Thus, they usually have shorter grace periods within which the afflicted party seeking to enforce their contract right can sue (US Legal, 2019). The continued use of oral contacts in dealings between parties calls for exploration of their enforceability to by the courts.
The Enforceability of Oral Contracts
In the US, every state has a Statute of Frauds, which refers to the law providing for all contracts to be in writing when covering important transactions such as property titles and transfers, long-term leases that are over a year long, and wills among others. The US Legal (2019) observed that the provision of the law seeks to protect parties against false claims for payment not stipulated in the contracts. The law is not applicable to transactions conducted through oral contracts that lack proof of agreement (Rabiner, 2011). However, it is important to understand that oral contracts can be enforced. Saxena, Kumar, and Pandey (2019) contended that it is possible to generate instruments for authentication of oral contracts, making enforcement possible. While applying for the patent for the methodology of generating such instruments, Saxena et al. (2018, p. 1) noted that, “digital media recordings from transacting parties can be converted into authenticated instrument of oral agreement”. The process entails embedding of the digital recording into an electronic form of contract agreement with configurations that represent the oral contract between the transacting parties. Application of this technique means that contracting parties can provide proof of the oral contract when suing for breach.
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However, there are instances where proof of oral contracts is non-existent, and the claimant of the contract right sues for breach of the contract by drawing on verbal evidence. Rabiner (2011) argued that despite contrary beliefs, oral contracts are enforceable in such situations, provided the claimant presents sufficient evidence to the court. LaMance (2019) observed that the oral contract must be valid to be enforceable, but do not have to memorialized in writing. This means it must have all the four basic elements of a contract, namely: offer, acceptance, consideration, and mutuality (LaMance, 2019). According to the Business and Technology Law Group - BTLG (2019), written or oral contracts are enforceable only when there is clarity and certainty about the essential terms of the contract. The precedent for the terms required in any contract including oral contracts, was set in the Robinson v. Gardiner of 1950. In the case, the court held that for an oral contract to be enforceable, it must define and detail the role each party is obligated to perform, and must have adequacy to allow the court to determine the purpose and intent of the parties (BTLG, 2019).
The need for clarity and certainty in oral contracts ensures avoidance of the negative influence of contract on enforcement, and the resultant impact on performance from aligned or misaligned enforcement. Mooi and Gilliland (2013) defined enforcement as a corrective process taken to ameliorate potential issues emerging in the transaction. Nevertheless, contracts have the potential to decrease or increase enforcement. The BTLG (2019) provided the Effie Dolan v. Christopher McQuaide case as an example. In the case, the court entered a summary judgment favoring the defendant by ruling that the alleged oral contract with the plaintiff was too vague to be enforceable. The plaintiff and the defendant entered into an oral agreement to start a business and would be compensated from their roles and responsibilities. The plaintiff went to court to seek enforcement following breach of the oral promise to share the net profits by the defendant. The court held that the communication between the two were mere general terms, and were not definite enough to warrant a contractual relationship. The court claimed further that performance of actions initially discussed between the two did not amount to an oral contact. On the other hand, the court established that plaintiff had the right to claim compensation equal to the value for services provided as provided under thee unjust enrichment action law (BTLG, 2019). The case illustrates the vulnerability of oral contracts to aligned or misaligned enforcement. It is a typical case of an implied contract.
Understanding Implied Contracts
The case of Effie Dolan v. Christopher McQuaide cited by the BTLG (2019) is a classic example of an implied contract. The Legal Dictionary (2017, par. 1) defined implied contract as “a contract that exists based on the actions of those involved”. The implied contract is not written, and differs from oral contracts because it lacks any form of verbal agreement. Implied contracts are legal and are assumed to exists based on the actions of the transacting parties. Under this type of contract, the parties act and behave in a manner suggestive of an agreed upon arrangement of obligation. The Legal Dictionary (2017) noted that an example of an implied contract is the implied warranty, which goes into effect upon purchase of an electronic product such as a television. The assumption is that the product must be able to work at the first attempt, other arrangements notwithstanding.
In conclusion, it is important to reiterate that oral contracts are enforceable, except in cases involving the Statute of Frauds, where a written agreement must exist as proof of the agreement between the contacting parties. The basis for enforcement of oral contracts is the provision of evidence with clear and certain terms of the agreement between transacting parties. However, enforcement may be aligned or misaligned depending on the court’s determination of whether the verbal agreement is defined enough to amount to an oral contract.
References
Business and Technology Law Group – BTLG. (2019). Oral contracts-how enforceable are they? Retrieved from http://www.btlg.us/News_and_Press/articles/Oral%20contracts-how%20enforceable%20are%20they
LaMance, K. (2019). Can verbal contracts be upheld in a court of law? Legal Match. Retrieved from https://www.legalmatch.com/law-library/article/oral-contract-requirements.html
Legal Dictionary. (2017). Implied contract. Retrieved from https://legaldictionary.net/implied-contract/
Mooi, E. A., & Gilliland, D. I. (2013). How contracts and enforcement explain transaction outcomes. International Journal of Research in Marketing , 30 (4), 395-405.
Petty, R. D. (2015). Contracts. Wiley Encyclopedia of Management , 1-4.
Rabiner, S. (2011). Is oral contract enforceable? Find Law. Retrieved from https://blogs.findlaw.com/law_and_life/2011/10/are-oral-contracts-enforceable.html
Robinson v. Gardiner , 196 Md. 213 (1950).
Saxena, N., Kumar, D., & Pandey, A. K. (2018). U.S. Patent Application No. 10/062,130 .
