How Are Oral Contracts Formed

Oral contracts, also known as verbal agreements, are legally binding contracts that are formed through spoken words rather than written ones. They are commonly used in everyday situations, such as when individuals agree on the sale of goods, provision of services or lending of money. But how exactly are oral contracts formed and what should you consider when entering into one?

Formation of Oral Contracts

Oral contracts are formed when two or more parties come to an agreement through spoken words, gestures or other non-written means. The agreement must be clear and unequivocal, with all parties expressing an intention to be bound by the terms.

For an oral contract to be enforceable, it must satisfy the basic elements of a contract, which include:

1. Offer – One party proposes an agreement.

2. Acceptance – The other party accepts the offer.

3. Consideration – The offer and acceptance must involve something of value, such as money, goods, or services.

4. Mutual Assent – Both parties must understand and agree to the terms of the agreement.

5. Capacity – Both parties must have the legal capacity to enter into the agreement.

Requirements for Oral Contracts

While oral contracts are legally binding, they are subject to certain limitations. For example, some types of agreements require written documentation to be enforceable, such as contracts for the sale of real estate, agreements that cannot be performed within one year, and agreements for the sale of goods over a certain amount.

It is important to note that oral contracts can be difficult to prove in court because they lack written documentation. Therefore, it is important to have witnesses to the agreement or to make recordings of the conversations to support the claim.

Tips for Entering into Oral Contracts

If you are considering entering into an oral contract, it is important to take certain precautions to ensure that you are protected in case of a dispute.

1. Be clear about the terms of the agreement, including the obligations of each party, the time frame for performance, and the consequences of breach.

2. Keep records of the agreement, such as emails, texts, or recordings of the conversations.

3. Consider formalizing the agreement in writing to avoid disputes and misunderstandings.

4. Seek legal advice before entering into any oral contract, especially if it involves significant amounts of money or complex terms.


Oral contracts are a common and legally binding way of forming agreements. However, they can be difficult to prove in court, and certain types of agreements require written documentation to be enforceable. By taking certain precautions and seeking legal advice, you can protect yourself when entering into oral contracts and ensure that your rights are protected in case of a dispute.

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