Is an Oral Contract as Good as a Written Contract?

An Oral Contract is as legally binding as a Written Contract, the issue with an Oral Contract is in proving its existence. To begin, the existence of a Written Contract is fairly obvious, either there is a writing or there isn’t. An oral contract, by definition, does not have a writing to support its terms, conditions or even existence. So how can we prove that it exists? One way is to use witness testimony. If A and B enter into an oral agreement, and C and D are present at the time the oral contract is made, C and D can be used to prove the existence of the oral contract. Their testimony that they heard the terms of the agreement will be sufficient to prove the existence of an Oral Contract.

Course of Conduct is another way to prove the existence of an oral contract. Let’s assume that X offers to buy a radio from Y for $50. Y accepts and hands the radio to X, who then gives Y $50. The parties’ course of conduct indicates that an oral contract existed. If the radio were defective, or if Y changed his mind, he could not say that a contract did not exist. Another example of Course of Conduct would be your typical neighborhood newspaper delivery. For the most part, the newspaper boy delivers a newspaper to you and you pay him on a weekly basis. There is rarely a written agreement with the newspaper boy to deliver newspapers. You simply tell him, “please deliver a paper to me, and I will pay you”. If the newspaper boy delivers newspapers to you for a few week, and you pay him, an oral contract exists based upon the parties course of conduct. After this time, if the papers are delivered and then you refuse to pay, you cannot allege that there is no contract. The Course of Conduct indicates that an Oral Contract exists.

Credibility of the parties is another factor in proving the existence of an Oral Contract. Suppose that Patron walks into a local restaurant and orders a plate of spaghetti. When Patron orders the spaghetti, an offer is made by Patron to pay for a plate of spaghetti. When the server brings the spaghetti to Patron, an Acceptance occurs and a binding oral contract is made. Credibility comes into play where the Patron then refuses to pay for spaghetti, saying “I never agreed to pay for this, I thought it was free”. All of you can see that is an incredible statement. Should that type of matter go to court, a judge would look at the credibility of the parties in regard to the situation and likely find that an oral contract was formed. If you reconsider the spaghetti scenario, though, you can see where an oral contract would be just as legally binding as a written contract. If a lawsuit were to arise out of the patron’s failure to pay, any court in the land would find the existence of the oral contract based upon credibility.

The existence of an oral contract can be more difficult to prove in a different type of scenario. Imagine a scenario with P and Q. P and Q are complete strangers. P approached Q and offers to buy a Corvette from Q for $1,000. Q laughs, and says “sure”, then drives away in the Corvette. If P attempts to enforce what he feels is a binding oral agreement, will he succeed? He will have a very difficult time proving that a contract exists. There is no writing to show the agreement. There is no prior course of dealing between the parties. There were no other witnesses to this alleged conversation. Credibility becomes an issue here, along with believe-ability.
As you can see, the difficulty in enforcement of an oral contract lies in the parties' ability to prove what the terms of the contract were. Absent proof of the terms of the contract, a party may be unable to enforce what it believes to be a firm contract. Evidence, such as witness testimony, prior dealing of the parties, course of conduct and credibility of the parties are some factors that may play into the enforcement of an oral contract. If sufficient evidence can be established that the parties orally entered into a contract, the terms of that contract will be enforced. If the proof is strong, then an oral contract is just as binding as a written one. The question at hand lies with the sufficiency of that oral evidence.

About the author: Greg Artim is an Attorney with offices located in Pittsburgh, Pennsylvania. For more answers to your Contracts or other legal questions, please visit his website at www.gregartim.com