The Basics of Oral Contracts
Verbal contracts, or oral agreements, are both more ambiguous and more straightforward than a written contract. They can cover any agreement between two parties, whether social or business-related, that the parties can communicate but cannot or do not want to put down on paper. A contract, in the terms of the law, is an agreement between two or more parties either to do something or refrain from doing something. The consideration (something of value) exchanged need not be monetary. A handshake can seal the deal, just as easily as the written words "done," "agreed to," or "contract."
Where the clarity of a written contract leaves little question as to the parties’ intentions, a verbal contract more often invites disagreement over the meaning of the contract or the party’s intentions . It is possible for two parties to have a verbal agreement over something as simple as the surprise birthday party one is planning for the other: Was it a good idea for them to also plan an elaborate dinner? Did they discuss their budget? Was this a conversation about what two people need for a healthy friendship or marriage?
Two aspects of a verbal contract tend to confuse potential parties. First, most people believe that verbal contracts are not legally enforceable anywhere in the United States. A verbal contract is legally enforceable in most states, but there are exceptions. Florida is one of those exceptions.
The Statute of Frauds is the second source of misunderstanding. In contract law, "fraud" does not implicate any kind of dishonesty. It means different sorts of actions that might mitigate the terms of a contract. Just as one might expect, the Statute of Frauds is not specifically applicable to verbal contracts. It is, however, a handy legal construct to keep in mind, because it clarifies what contracts need to be in writing in order to hold up in court.
When Are Oral Contracts Valid Under Florida Law?
Florida common law has long provided that contracts can be formed orally, in writing, or implied from the parties’ actions. While these rules still exist, Florida’s Uniform Commercial Code (UCC), which provides statutory rules governing commercial transactions, revises and adds to the common law rules about contracts.
Some contracts, called "exceptions to the rule," require that a contract be in writing in order to be enforceable. For example, the statute of frauds provides that certain contracts must be in writing in order to be enforceable. Specifically, Florida Statute § 725.01 provides: "Ill. Code § 2-201." Florida Statutes § 725.01 makes it clear that verbal contracts are enforceable when the contract does not fall within the statute of frauds.
In addition, Florida Statute § 95.11(2) sets forth a limitation period for actions on various types of contracts. See, e.g., FLA. STAT. § 95.11(2)(b) (six-year limitation period for actions on a written contract); id. at (2)(f) (four-year limitation period for actions on an oral contract). The limitations period for an oral contract begins to run from the time of the breach, even if not immediately discovered. FLA. STAT. § 95.11(2)(d); see also Mathews v. Orange State Bank, 233 So. 2d 131, 132 (Fla. 4th DCA 1970)("plaintiff would be barred by the statute of limitations because the contract was oral, and expired four years from the time of breach.").
Moreover, in Florida, a violation of the Statute of Frauds may be asserted as an affirmative defense to enforcement of an agreement. Solon Automated Services, Inc. v. Strategic Resources, LLC, No. 1D15-3340, 2018 WL 1073713, at *3 (Fla. 1st DCA Feb. 28, 2018). Affirmative defenses to the Statute of Frauds include a ratification defense (where a party’s conduct is inconsistent with a statute of frauds defense, such that the party appears to have ratified the unwritten agreement) or a quantum meruit defense. Id.
Requirements for Oral Contracts To Be Enforceable
Verbal contracts may be enforceable under some circumstances. A party seeking to enforce a verbal contract must show the following:
- Offer. The party seeking to enforce the contract must show that he made an offer to the other party. An offer requires that there be an offer and acceptance. An offer is an expression of willingness by the party making it to enter into a bargain so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.
- Acceptance. An offer must be accepted. An acceptance is the manifestation of assent to the terms thereof made by the offeree in a manner invited or required by the offer. It is unnecessary that the acceptance be communicated if it is clear that the offeror is not induced by the conduct of the offeree to make the offer.
- Consideration. A verbal contract must also involve consideration (some type of exchange). Such consideration must entail the performance of an act without any obligation to perform that act, or the forbearing of an act or the creation, modification or destruction of a legal relation.
- Mutual Intent. In order to demonstrate the mutual intent to enter into a verbal contract, a party may rely on circumstantial evidence which indicates that a verbal contract existed. If the contract did not involve the transfer of real estate, this element will not be difficult to prove because of the lack of requirement for a written contract.
When Oral Contracts Aren’t Valid Under Florida Law
Like most general rules, there are exceptions and limitations to the enforceability of verbal contracts in Florida. For example, there are instances where the law requires contracts to be in writing in order to be enforceable, including most real estate transactions. The statute of frauds requires all agreements to buy or sell real estate to be reduced to writing to be enforceable.
Additionally, even though oral contracts might not "technically" require a written contract to be enforceable under Florida law, courts may nonetheless refuse to enforce a verbal contract if it would be unfair or unjust to do so. Under what is known as the "equitable remedy of estoppel," oral contracts may be enforceable when one party reasonably relied upon the other party’s representations and it would now be unfair to let the other party back out of the oral contract. Put another way, oral contracts may be enforceable when doing so would prevent an injustice.
Proving the Existence of an Oral Contract
In the absence of a written contract, Florida law permits recovery under an implied-in-fact contract. This is a type of contract that is inferred from the conduct of the parties in light of the surrounding circumstances. For a verbal contract to be enforceable, there must be some sort of evidence beyond the parties’ word that the contract actually existed. In proving the validity of an oral contract in Florida, the burden rests on the party seeking to enforce it to establish that a verbal contract relationships existed.
In order to establish the existence of a verbal contract, that party must show that consideration (something of value) was exchanged; the terms of the contract are reasonably definite; the party seeking to enforce the contract performed his or her part of the bargain, or is ready, willing and able to do so; and that the other party failed to perform his or her part of the bargain .
Evidence sufficient to establish an oral contract may include:
Witness testimony – when considering testimony related to the verbal contract, the court will consider the entire context (i.e., all testimony and deposition transcripts) of the communications between the parties to determine whether a verbal contract was formed.
Written confirmation – any notice that one of the parties plans to perform under the contract, or that a party expects or promises to receive performance from the counter party, will be considered when making a determination.
Admit against interest – for a verbal contract to be enforceable, at least one of the parties must have admitted to the existence of the contract. This admission may save a party from having to overcome the statute of frauds.
Myths About Oral Contracts
The prevailing view is that verbal contracts are not binding, but that’s not true. A verbal contract can be enforceable under Florida law, even if some of its terms need to be clarified before an agreement can be made. Indeed, the fact that some terms are vague does not render a verbal contract unenforceable. So long as there are sufficient "essential" terms to support an agreement, including the subject matter, price, and parties’ identities (name), then an oral contract may be enforceable.
Another misconception is that verbal contracts are less binding or untrustworthy because they do not show how serious the parties are about entering an agreement. This has nothing to do with whether an oral contract is binding or enforceable. Instead, the situations in which parties use oral contracts typically tend to involve lower stakes, usually because the parties are doing business with people they know. If a party decides to go without a formal written contract when doing business with a stranger, it may be more difficult to enforce the verbal contract.
Another misconception is that verbal contracts should not be given much weight by a court, forcing them to be less binding or enforceable. Such informal written contracts may still be enforceable if the court finds that the parties entered into an oral contract and their oral contract is enshrined in a formal written contract. For example, the parties may have a signed written agreement explicitly saying that the oral contract was the definitive contract. Again, this may be more difficult to prove, but courts have held that the language in a formal contract overrides any claim that an oral contract was contrary to the clear language of the written contract.
Overall, oral contracts do have the potential to be enforceable under Florida law. Moreover, oral contracts or informal contracts may actually be more enforceable than written contracts if one party claims that a later written contract superseded the oral contract. This is because courts tend to interpret contracts as having intended to survive any possible ambiguity, which makes it more difficult for a party to avoid liability from an oral contract on the ground that it was never valid. Consequently, courts in many cases prefer to uphold oral contracts instead of nullifying them.
What You Need to Know About Oral Contracts
The best advice we can offer is to not enter into a verbal contract to begin with. An enforceable contract requires an offer, acceptance and consideration. When only one party has a written document evidencing the contract, folks often have very different ideas of what the contract covers. This rarely ends well. As a practical matter, if for some reason you feel you need to enter into a verbal contract, consider doing the following:
- Search "verbal contract" on-line, or just google the title of this blog; I promise you will find a trend to not enter into a verbal contract.
- Once you have made a verbal contract, write an e-mail to the other party and ask him or her to confirm the agreement as listed in the e-mail. If that individual responds, you will at least have some evidence to support your case.
- Follow up with a formal typed letter that documents the verbal contract. Your typed letter should contain the names of the individuals and their positions within the companies involved, their address and phone numbers, and a description of what has been agreed to verbally. Request that the typed letter be signed by the other party and returned, and provide for multiple signatures if there are multiple parties involved. Mail the letter to the other party and send a copy via e-mail.
- No matter how many times and with how many folks you discuss the agreement, be sure to only discuss it with all parties involved and only discuss the terms of the agreement amongst the parties. Remember our earlier advice regarding recorded conversations.
- If a verbal contract goes bad and is worth pursuing in court, consider all comments you have made to the other party that were not documented in writing. We can promise you, they will be offered against you in your lawsuit.
- As a last resort, if there is a dispute over the existence of the verbal contract, consider having the other party give a sworn statement (either written or in court) admitting that a verbal contract exists based upon his or her memory of the details.
If you are not comfortable with these tips or have doubts about whether a written contract is appropriate for your agreement or project, consider calling an attorney for guidance.
If Someone Breached an Oral Contract in Florida
Generally, when you enter into a verbal contract in Florida, this is an agreement that is not written down but is a legally enforceable contract between the parties. If one party breaches the terms of the contract, they may have to pay for damages as a consequence of their breach. Depending on the situation, a breach of contract may be classified into three categories: When determining what damages the aggrieved party may receive, courts will consider what damage the breach caused the party to suffer. When determining the extent to which damages are recoverable, courts may look at what specific damage the aggrieved party is seeking to recover. Usually, nonpecuniary losses are not recoverable. Monetary losses caused by the breach of contract are generally the only damages that are recoverable. When a verbal contract is breached, certain remedies are available for the aggrieved party. A liquidated damages clause is one option as it allows the parties to a contract to pre-determine an agreed-upon amount of damages if a breach occurs. The amount agreed to cannot amount to a penalty or punishment for breaching the contract. It can, however , represent the anticipated damages incurred as a result of the breach. Even if this clause is present in the verbal contract, a party may not be able to recover the entire amount of damages if the amount is deemed unreasonable for the breach as not all damages are recoverable. Remedies also include a request for specific performance. This is a legal order requiring the breaching party to perform under the terms of the verbal contract. Specific performance orders are sometimes available for parties in breach of verbal contracts to complete a specific task agreed upon in the contract. Specific performance does not require that the court rewrite the contract or add additional terms. Specific performance orders are not available if the task parties are required to complete is not possible or is not legal. Another option is restitution. This allows courts the ability to award the aggrieved party to be restored to their rightful position as a result of the benefit they provided the other party. When parties enter into oral contracts, verbal or spoken agreements are legally enforceable in the eyes of Florida law. Breach of this contract could lead to court action and the breaching party may be required to compensate the aggrieved party for damages.