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Robbins: The enforceability of oral contracts

“Shake on it?”

“Yeah. OK.”

“Maybe we should put this in writing.”



“Nah. We’re good. We have a deal.”

“Yeah. OK then. Deal.”

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Does the above create a contract and a binding one at that? Well, yeah. Maybe. But first, it helps to know precisely what a contract is.

While it may seem like a simple, even self-evident, question: “What is a contract?” The answer may be more elusive than it first appears. Anyone old enough to be out of swaddlings knows that a contract is an agreement. The question, though, is what raises a simple agreement to an obligation to which the parties will be legally bound and which may be enforced before a court of law? The distinction between the two is the essence of a contract.

Defined at its most elemental level, a contract is an agreement between two or more parties which creates an obligation to do (or not to do) a particular thing. To be binding (and, therefore, enforceable), certain essential requirements must be met. First, the parties to the agreement must be competent. Therefore, a party laboring under sufficient mental or emotional infirmity may not be legally competent to contract. Similarly, a minor (that is, a person under the age of 18 years old) is, under most circumstances, considered legally incompetent to contract.



Second is the requirement of subject matter. What is the “nexus” or basis of the contract? Precisely what is it that the parties are agreeing to do (or to forebear from doing)? What is the essence of the thing? Is one party agreeing to sell his 1996 4Runner and the other party agreeing to buy it, or does the contract relate to one party’s employment by the other? What is the “thing” over which the parties are negotiating? Whatever it is, it must be clearly laid out and understood by both.

Next, there must be “consideration.” No, this doesn’t mean the parties have to be thoughtful to one another.  “Consideration” means that something of worth or value must be exchanged in return for the performance of the obligation. You give me your car and I give you money for the car; we both part with something of value to make the deal. 

In this circumstance, where money changes hands, the amount of money changing hands must also be clear. How much money are you paying me for the car? Of course, not only money can change hands to make a deal. I agree to trade my labor (presumably, something of value — my time and expertise), in exchange for which you pay me money, or agree to mow my lawn, or something which in some way “advantages” the other party and “disadvantages” each of us.   

Incidentally, the consideration must be something legal. You can’t, for example, agree to exchange a pound of meth in return for my car or to sell yourself into either slavery or prostitution in return for my wheels. What is exchanged between the parties has to be something mainstream and above board. Think of it pragmatically: Are you going to march into court claiming I’m in breach of our agreement when you traded something illegal with me in return for my obligation? 

“Your Honor, I sold myself into slavery and now he won’t sell me the car!” A tough sell, to say the least.

There must also be mutuality of agreement — that is the parties must understand that they’re making a deal for the same thing on the same terms. An example might be helpful. Suppose you and I are dealing for the sale of my car. I agree to sell it to you and you agree to buy it. So far, so good. 

We reach an agreement on the price, say $30,000. But when the big day comes for you to pick up what are “your” hot new wheels, I present you with my 1969 VW Bug. You thought you were getting the 1998 Ferrari. Oops, no mutuality of agreement. And no deal. Indulge me a bit more. Let’s use the car example again. This time we both know it’s the Ferrari. We agree to $30,000. But this time, when you come to pick up the wheels, you hand me pesos instead of greenbacks. Oops, no mutuality of agreement and, therefore, no deal. 

Lastly, there must be mutuality of obligation. I can’t oblige you to do something or to give me something except in exchange for something of mine. If you promise to mow my lawn for me, for example, just because you’re a heck of a guy and have a kind heart, I can’t sue you to get the darn grass mowed if you change your mind, unless I agreed to pay you something or exchange something else of value with you in return for the job. Contracts are enforceable; gratuitous promises generally, are not.

These things, taken together, are the “essential elements” of a contract, the things you must have to have an enforceable agreement. Of course, there may be many, many more obligations that may be spelled out. Commercial, construction, and development contracts can be, and often are, especially detailed, laying out, with great specificity a whole host of obligations and counter-obligations. The higher the “ticket price” of the deal, the wiser detail often becomes.

This brings us back to oral contracts — that is, those agreements made verbally and not in writing. In most circumstances, an oral contact is as enforceable as one that’s written. There are, however, some agreements (such as agreements dealing with an interest in, or ownership of, land) that must be written to be enforced. The main problem with an oral agreement, however, is proving its terms if a disagreement ever arises. Then, with little or nothing to point to laying out the road map of the contract’s elements, the dispute almost inevitably dissolves into a “swearing contest” which is difficult, if not impossible, for the court to reasonably decipher.

“Do we have a deal?”

“Well yeah. But wouldn’t we be wise to write it down?”

Indeed. In fact, you would.

Rohn K. Robbins is an attorney licensed before the Bars of Colorado and California who practices Of Counsel in the Vail Valley with the law firm of Caplan & Earnest, LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, and divorce, and civil litigation. Robbins may be reached at 970-926-4461 or at his email address at Rrobbins@CELaw.com. His novels, “How to Raise a Shark (an apocryphal tale),” “The Stone Minder’s Daughter,” and “Why I Walk so Slow” are currently available at fine booksellers.    


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