Written Contracts vs. Oral Contracts

Many people believe that a legally binding contract must be written. This is a myth. A contract can be made on spoken words alone or even by the conduct of the parties. For example, you shop at a garage sale where a sign is posted “Everything one dollar.” You see a vase you like, you pick it up, hand over a dollar, and walk away with the vase. You’ve completed a sales contract. Of course, even if there is no writing, the basic contract requirements must still be met: offer, acceptance, and consideration. The parties also must be competent and must consent to the contract.

Oral Contracts vs. Written Contracts

The main difference between an oral contract and a written contract is that it is harder to prove the existence of an oral contract. Because an oral agreement is not written down, the existence of the terms must be proved by memory of the parties and other evidence. This process is susceptible to error and mischief, and leads to disagreements. That is why many contracts are written. A writing provides certainty, clarity, and definiteness to the agreement. A writing does not depend on the memories of the parties to the contract. For these reasons, it is good practice, when possible, to put agreements in writing so that all of the parties to the contract know what has been agreed to, and what is expected of them.

Of course, if the parties to a transaction do not intend it to be binding unless it is in writing, ordinarily no contract will arise until there is a written contract.

Statute of Frauds

Most states have what is called a Statute of Frauds. This law, of English derivation, requires that some types of contracts be in writing in order to be valid or enforceable. Generally, contracts transferring land interests, contracts that take longer than one year to perform, and contracts in the amount of $500 or more must be in writing. For example, let’s say you agree to buy a computer for $2000 without a written contract, and your state law requires sales contracts in an amount of more than $500 to be in writing. You have not made a binding contract and you are not required to purchase the computer.

Large Contracts

Most contracts involving a great deal of money or serious legal obligations are written contracts. For example, a contract for sale of property, a two-year car lease, and auto, property, and medical insurance contracts are written contracts. Written contracts provide certainty to terms; they spell out in detail the various obligations of the parties and attempt to deal with future contingencies.

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