What type of contract is created by an agreement that is oral when it is required by the Statute of Frauds to be in writing?

Oral contracts are verbal agreements between two parties. An oral contract occurs when spoken words are rendered valid and legally enforceable in a court of law. However, an oral contract is not legally enforceable unless it is provable in court, and it must meet various requirements of contract formation. Further, it must not be in violation of statutes prohibiting oral contracts. For example, state statutes may require sales involving real property, and the agreements may have to be in writing, or the performance must take over a year.

Although it’s hard to prove if a breach occurs, such a contract is still legally binding. A noteworthy example of oral contract enforceability took place in the 1990s, when actress Kim Basinger retracted her promise to play a role in “Boxing Helena.” The jury granted producers $8 million because of the broken promise, but Basinger appealed the decision and settled for a lower figure. However, she had to file bankruptcy as a result.

Oral agreements may also be called verbal contracts; however, this is an incorrect statement. Verbal contracts entail any contract since all agreements are forged with language. Rather, an oral contract is a legal agreement that can be enforced by a judge, if necessary.

Oral Contract Requirements

Oral agreements include the following attributes:

1. The offer
2. Acceptance regarding the offer
3. Consideration

In certain cases, an agreement is not valid unless the agreement terms are in writing. In the case of an offer, it is a promise, or various promises, to perform a certain task. For example, the offeror promises to purchase a vehicle, or he promises not to work for anyone else during an employment term.

After, the offeror waits for the acceptance from the person who may agree to the deal, otherwise known as the offeree. For instance, Henry offers Mike $2,500 to buy a living room set. In return for the cash, Henry promises to give Mike the living room set.

Moreover, the consideration renders an oral agreement legally binding in nature. This also means that a party has every right to commence litigation because of the terms of the oral contract. If Henry fails to give Mike the living room set, Mike may then sue him. This also means that a person has a right to litigation because they must legally enforce oral commitments that another party made. Take note of the following types of consideration:

1. Property
2. Goods
3. Services
4. Money
5. Promise to refrain from doing a task
6. Promise to perform a certain task

Statute of Frauds

Oral agreements are not enforceable when they fall under the category of Statute of Frauds. It is an old law that prevents deceitful behavior and has long durations or high stakes. The Statute of Frauds mandates certain agreements in writing for various contracts:

1. Land
2. Paying off another person’s debt
3. Marriage
4. Property transfers
5. Contracts that have over one year to finish
6. Contracts lasting longer than the lifespan of the participants
7. Agreements regarding a certain amount of money (varies by state)
8. Real estate leases that last over a year
9. Real estate sales involving executors of a will

Courts will not usually enforce agreements if they fit into one of these categories. To be legally binding, some type of writing must be in place to protect all parties. With that, the Statute of Frauds comes with various exceptions. Also, even if oral agreements fall within the terms, they will be enforced in the following ways:

1. If a single party partly complied to the terms
2. Plaintiffs relied on a defendant’s promise and suffered a detriment of some kind

In the event that a breach occurs, it is up to the plaintiff to prove the necessary evidence. Also, the odds are stacked against plaintiffs when it comes to oral cases because they can be hard to prove in court.

Handshake Deals

Handshake deals are an old-fashioned way of agreeing to terms, and it was a way of ensuring that each party did not have a weapon within their sleeves. However, handshakes are a legally binding arrangement if a witness is involved. If you shook hands on the contract with no one there to see it, you would receive a right to work on your end of the agreement.

To learn more about oral contracts, you can post your job on UpCounsel’s website. UpCounsel’s attorneys have graduated from some of the best law schools in the nation and will guide you in making the best agreement that protects your interests.

The Statute of Frauds is a legal principle that requires certain types of contracts to be executed in writing to be enforceable. The Statute of Frauds aims to prevent fraud by formalising agreements, especially significant ones that carry serious consequences.

For instance, it applies to contracts for the sale of land, as dictated by section 59 of the Property Law Act 1974 (Qld):

“No action may be brought upon any contract for the sale or other disposition of land or any interest in land unless the contract upon which such action is brought, or some memorandum or note of the contract, is in writing, and signed by the party to be charged, or by some person by the party lawfully authorised.”.

The Statute has both evidentiary and cautionary purposes — requiring contracts to be in writing provides evidence if a dispute arises, and encourages parties to carefully consider their obligations under the contract before entering into it.

Estimated reading time: 4 minutes

Table of contents

• Electronic contracts
• Exceptions to the Statute of Frauds
• Effect of non-compliance with the Statute of Frauds
  • Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577
• How Gibbs Wright Litigation Lawyers can help

Electronic contracts

A document in electronic form, such as one sent via email or over the internet, will be taken to be in writing (and signed) if certain requirements are met.

Section 14 of the Electronic Transactions (Queensland) Act 2001 (Qld) states that a signature requirement will have been met if:

• a method is used to identify the person and to indicate their intention in relation to the information provided;
• the method was either as reliable as appropriate in the circumstances, or was proven to have fulfilled the functions above; and
• the recipient consents to receiving the signature that way.

Section 11 of that Act states that a requirement to give information in writing will have been met by giving the information by electronic communication if:

• at the time the information was given, it was reasonable to expect the information would be readily accessible so as to be useable for subsequent reference; and
• the recipient consents to the information being given by electronic communication.

Exceptions to the Statute of Frauds

There are a number of exceptions to the Statute when only an oral agreement exists, even though the Statute would usually require the agreement to be in writing to be enforceable.

An example is when a party relies on an oral agreement and partially performs their obligations. The courts will usually rule that the oral agreement is enforceable, up to the extent that the contract has been completed.

This doctrine of “part performance” overcomes injustice for that party by allowing equitable relief.

Another example is an implied easement on land. This is an easement not created by grant or reservation or statute but implied by common law so that the land can continue to be used in a certain way.

Effect of non-compliance with the Statute of Frauds

A failure to comply with the Statute of Frauds makes a contract unenforceable rather than void. So, it is possible for parties to choose to proceed with the contract.

Pavey & Matthews Pty Ltd v Paul (1987) 69 ALR 577

Licensed builder, Pavey & Matthews, made an oral contract with Paul to do certain building work on a cottage. Paul made a part payment for the work and refused to pay the balance. When Pavey & Matthews demanded it, Paul claimed that the contract was unenforceable because it was not in writing as was required by section 45 of the Builders Licensing Act 1971 (NSW).

The High Court ruled that Pavey & Matthews was entitled to restitution because Paul had accepted the work that had been done and Paul would otherwise be unjustly enriched at Pavey & Matthews’ expense. Their Honours Mason and Wilson JJ considered that the purpose of the provision was to “protect the building owner against spurious claims by a builder by preventing the enforcement by him of nonconforming contracts”. They continued, however, that “it would be going a very long way indeed to assert that the statutory protection extends to a case where the building owner requests and accepts the building work and declines to pay for it on the ground that the contract fails to comply with the statutory requirements”, concluding that an “interpretation that serves the statutory purpose yet avoids a harsh and unjust operation is to be preferred”.

How Gibbs Wright Litigation Lawyers can help

If you have concerns over the validity of a contract or any other contract matters, you can discuss them with our contract lawyers during a no-obligation, confidential consultation today.

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