Oral contracts are just as binding as written ones. The problem with oral contracts is proving they exist. There are several ways to do this.
Witness Testimony. If third parties are present when the oral contract is agreed to, the testimony of those third parties should be sufficient to prove the existence of an oral contract.
Course of Conduct. How each party behaves after the agreement is allegedly entered (the “course of conduct”) into is another way to prove the existence of an oral contract. If I give you my car in exchange for a sum of money, our conduct is proof of an oral agreement to sell you my car. Another example is an oral agreement to do yard work. If I ask someone to mow my lawn every week and I’ll pay him on the first of the month, the fact that he mowed my lawn every week and I paid him on the first is clear evidence that some sort of oral agreement existed between us. Neither party can deny the existence of the agreement- they can only argue over its terms.
Common Exchange. A common exchange is the type of oral contract that all of us enter into on a routine basis, whether we are aware of it or not. A prime example of this is when someone walks into a restaurant and orders a steak. That person has made an offer to purchase the steak, and when the server brings it to him, the offer is accepted and a binding oral contract is made. If the customer refuses to pay for the steak, arguing that he never agreed to pay for it, no one would buy the argument. If the steak were inedible, the case may turn out differently, because we commonly pay for food that is edible.
Even if all of the essential elements are present, a contract is void if its subject matter is illegal. For example, if a woman enters into a written contract with a hit man to kill her husband, she can not sue him if he failed to do so.
Even if not outright illegal, contracts can be found unenforceable on grounds of public policy because what the contract represents could pose harm to society as a whole. An example of contracts that may be voided on the basis of public policy include one that forbids an employee from quitting his job (which the court may view as indentured servitude).
In some cases, one party to a contract has a great deal of influence over the other party, based on the circumstances of their relationship. For example, an elderly multimillionaire marries a young woman who convinces him to sign an agreement giving her power of attorney over all his assets. The resulting contract might be found unenforceable on grounds of undue influence, if it can be shown that the wife used excessive pressure against the husband during the bargaining process, and the husband, who is elderly, vulnerable, and besotted with love, was overly susceptible to his wife’s pressure tactics.
Sometimes a contract is unenforceable not because of purposeful bad faith by one party, but due to a mistake on the part of one party (called a “unilateral mistake”) or both parties (called a “mutual mistake”). In either case, the mistake must have been about something important related to the contract, and it must have had a material (significant) effect on the exchange or bargaining process.
Lack of Capacity
Each party must be capable of understanding the nature of the contract. If one of the parties is a minor, mentally disabled, or otherwise lacks the ability to to completely understand the agreement and its implications, the contract may be void or voidable.
If someone is threatened into signing an agreement, it may not be enforceable if he or she can prove duress. For example, take a situation in which a tire company has only one rubber supplier, which presents it with a purchase contract at double the price, and the tire company has no choice but to sign it if it hopes to fulfill a crucial order. Another common example of duress is blackmail.
Misrepresentation and Nondisclosure
If one party deceived the other into executing a contract, it will probably be held unenforceable. In order to render the agreement unenforceable, the misrepresentation must have been material- in other words, the statement was a critical one that the aggrieved party relied upon in entering the contract.
In certain cases, contracts may be held unenforceable due to the failure of one party to disclose a vital aspect of the arrangement. Courts look at various issues to decide whether a party had a duty to disclose the information, and will also consider whether the other party could or should have easily been able to access the same information. Parties have a duty to disclose material facts. Issues may arise about what may be considered material.
Unconscionability means that the contract was so outrageous and unfair that a party is prohibited from enforcing it. This can occur when one side has grossly unequal bargaining power, coupled with unfair terms. If a court does find a contract unconscionable, it has options other than just voiding the agreement altogether. It may instead choose to enforce the conscionable parts of the contract and rewrite the unconscionable term or clause.
In some cases, a contract is deemed unenforceable because it would be impossible or impracticable to carry out its terms — too difficult or too expensive, for example. To claim impossibility, you would need to show that:
- you can’t complete performance under the contract because of some unexpected event that’s not your fault
- the contract didn’t make the risk of the unexpected event something you needed to shoulder, and
- performing the contract will be much more difficult or expensive now.