Oral Promises and Contract Law

06 Feb Oral Promises and Contract Law

As a general rule, I tell all my clients that every business relationship they have should be documented in a contract. It is a simple rule and sounds as if it would be easy to follow. But it is not always so easy since in the real world, people talk. But talking can get business owners in trouble if they are not careful. One way I protect clients in contracts that I draft or review is to include a provision in the contract that says any amendments or changes to the contract have to be in writing.

But in the real world, as opposed to the utopia of written contracts, people make promises to do something all the time. I believe that people will make every effort to follow through on their promises. It might be something simple, such as promising to deliver an estimate for a project by the end of the week. A promise like that does not carry much risk if it is not met.

But what if the promise is more specific and costly? What if the promise has to do with the payment of money or to purchase certain goods? Can an oral promise be considered a contract?

The answer to that question is yes, it can be considered a contract. Failure to perform a valid oral contract can be addressed by a lawsuit. Courts are regularly asked to determine if the parties to a lawsuit actually created a valid oral contract or at least enough of a contract that can be enforced by the court.

There are certain contract subjects which must have a writing (this is in Maryland):

1. Any contract that requires a person to pay the debt of another person.
2. Any contract made in consideration of a marriage (such as a prenuptial agreement)
3. Any contract that cannot be performed within one year of the contracts formation.
4. Generally any contract for the sale of goods whose price is greater than $500.
5. A lease contract whose payments are greater than $1,000, extend for more than one year, and a few other exceptional limitations.
6. Generally, any contract for the sale of real property.

These few subject matters leaves many other areas of business relations that can be accomplished by oral contracts, for example, an employment or independent contractor agreement.

Of course the best practice is to put contracts in writing, even it if is a simple piece of notebook paper with ballpoint pen. But if you do make an oral promise, the simpler the promise the better.