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It's The Law: Oral Contracts Can Be A Problem

Question: I have heard that an oral contract is just as good as a written contract. Is that true?

Answer: Any contract is good as long as the parties agree and each abides by the agreement. Written contracts have a substantial advantage over oral agreements. The written document can be reviewed for terms of the agreement in event of dispute. The parties may differ as to interpretation, but a judge will be able to confirm meaning of the words.

An oral contract carries more potential problems. The parties may not actually agree at the beginning and each have a different understanding of what they have discussed. When dispute later arises, proving terms of their agreement can be difficult. There are usually no independent witnesses to oral contracts. Hence, proving terms is problematic. And, proving the existence of the agreement may be impossible.

Even when parties agree, an oral contract may be unenforceable. The statute of frauds is statute that mandates certain contracts be in writing. In

Florida, the statute is found at Section 725.01 of Florida Statutes. The statute is a codification of the historic statute of frauds which we inherited from England. It's intent is to prevent fraud and enforcement of false claims by requiring certain types of contracts be in writing. If a contract within the statute of frauds is not in writing, the statute states that it is unenforceable.

Contracts which the statute mandates be in writing include the following:

  1. Agreement to pay debts of a third party;
  2. Any agreement made in consideration of marriage;
  3. Contracts for sale of real property or an interest in real property;
  4. Any lease for real property longer than one year;
  5. Any agreement parties do not contemplate will be completed within one year from date of the contract; and
  6. Any guarantee, warranty, or assurance of results of any medical, surgical or diagnostic procedure.

Other statutes also require certain contracts be in writing. Those include premarital agreements, agreements to make a will and agreements concerning rights of a spouse in the estate of the other spouse. Contracts for the sale of goods for $500.00 or more are also to be in writing.

Although the statute appears to be a complete bar to enforcement of certain oral contracts, its actual application is not so clear. For example, contracts that take more than one year to complete are not barred by the statute if the parties anticipated completion within one year. Merely showing possibility of completion within one year is not enough in Florida, although that would be sufficient in most states. Florida requires proof of intent of the parties. When the contract does not state a definite time for completion and it cannot be shown that performance within in one year is impossible, Florida courts have generally held the statute inapplicable.

In most cases, full performance by one party takes the contract outside of the statute. At least one court has held that although pre-nuptial agreements are required to be written, partial performance removes the agreement from the statute.

When there is no real agreement, but one party accepts the benefits of performance by another, the performing party might be able to recover under the theory of quantum meruit. Under quantum meruit, a party must prove an implied agreement and benefit from the performing party to the other. At least one Florida court has ruled that where a party claims an express agreement existed, it contradicts a claim for quantum meruit and the statute bars the claim.

Even a well written contract may be difficult to enforce. Words can be ambiguous and important terms omitted. Oral contracts are even more likely to be problematic. Evidence of terms is provided by claims of each party. The party seeking to enforce has the burden of proof, and in court cases a tie goes to the defendant. The statute of frauds poses yet additional obstacles.

For all of these reasons, it is important to retain an experienced attorney for contract drafting. It may even be more important after the fact, when problems arise to consult with an experienced attorney promptly.

By: William G. Morris, Esquire

Categories: Articles

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