A contract is typically a document between two or more parties which lays out an agreement by each side to perform certain actions. Sales of homes, purchases of businesses, and insurance agreements are all common examples of lengthy pages of terms and conditions which are eventually signed before the contract goes into effect.

However, there also exist many scenarios where parties reach an agreement and begin performance under their agreement, but never reduce their understanding into a physical contract. Under Texas law, these “oral contracts” are enforceable with the same legal requirements as a physical contract. Despite this, the standards for proving the existence of oral contracts are more stringent and evidence is often more difficult to prove without a document laying out specifics.

All contracts, to be legally enforceable, must consist of (1) an offer, (2) which was accepted, (3) a meeting of the minds, meaning an understanding of the terms, (4) acceptance by each party to those terms, and (5) execution and delivery of the contract with the intent that it be mutual and binding. While this can be easy to discern from a physical contract laying out the details of an agreement, oral contracts often leave a lack of clarity as to certainty.

Because of this common issue with oral contracts, interpretation is left up to external evidence. In litigation, when an oral contract is in dispute, evidence of the communications between the parties and actions in line with the alleged terms of an oral contract are of much importance. The above-mentioned elements of a contract must still be proven, meaning that unclarity is more likely to lead to an undesirable resolution.

Further, while a physical contract is presumably valid until proven not to be by a party, the proponent of an oral contract bears the initial burden of showing that a contract does exist. While a “handshake deal” might work out and be appropriate when dealing with familiar parties, it is not recommended to rely on an oral contract when the agreement is intricate or involves a large amount of investment.

Importantly, as a caveat to the otherwise enforceability of a valid oral contract, the statute of frauds requires certain contracts to be in a physical document. This principle attempts to provide caution and prevent unclarity regarding applicable scenarios. Sales involving real property, goods in excess of $500, and promises to pay the debt of another are examples of contracts which the statute of frauds prevents from being made without a tangible contractual agreement. Because of this, amongst other reasons, it is prudent to seek legal assistance before relying on an oral agreement.

Whether you are looking to enforce an oral contract, defend yourself from an alleged oral contract, or have an oral agreement reduced into a physical contract, Waldron & Schneider is available to help you. Our team of litigation attorneys is experienced in zealously arguing our clients’ positions in contract disputes, while our transactional attorneys are well-versed in drafting contracts that reduce the risk of future litigation.

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