Introduction

When it comes to business deals, most people imagine stacks of paper and a lot of signatures. But what if you just shook hands, said “deal” over a cup of coffee, and called it a day? Welcome to the world of oral contracts—those legally binding agreements sealed with nothing more than words and maybe a high-five. But are they actually legal? And more importantly, should you rely on them?

Read: Does a contract have to be in writing?

The short answer: yes, oral contracts are legal

Oral contracts can be perfectly legal—and in many cases, they’re just as enforceable as their written counterparts. The law doesn’t always demand a paper trail for every agreement, so long as the essentials of a valid contract are in place: offer, acceptance, consideration, intent, capacity, and a lawful purpose.

So, if you and your business partner agree verbally to split profits on, say, that new artisanal popcorn stand, congratulations, you’ve got yourself a contract. But hold up—it’s not always that simple.

The catch: proving it

While oral contracts are legally valid, proving their existence can be difficult. Without a written document, you’ll need to rely on witness statements, emails, or even text messages to demonstrate what was agreed upon. This often turns into a “he said, she said” scenario, which courts tend to view skeptically due to the lack of clear evidence.

In fact, arguments over oral contracts can feel like navigating a legal minefield, with each side presenting conflicting versions of events. The potential for misunderstanding make oral agreements much harder to enforce.

Read: How can I amend a contract after signing?

When oral contracts work (and when they don’t)

Oral contracts can be suitable for straightforward business deals or agreements involving small amounts of money, like hiring a freelance designer for a quick project or paying a vendor for a one-time service. In these cases, an oral agreement might be satisfactory—depending on the laws governing the contract.

However, for more complex or high-stakes business arrangements, having a written contract is often essential, especially given the legal requirements in different legal systems. Here are some scenarios where oral contracts generally won’t hold up.

Real estate transactions

If you think you can buy a house with a verbal "I’ll take it," think again. In most places, a real estate deal isn’t worth the paper it’s (not) written on if there’s no actual paper. You need a written contract to make it legally enforceable. No exceptions, no “but we had a deal!”

Agreements that are longer than a year

If the job or service will take more than a year to complete, it’s got to be written down. Courts want to avoid “wait, what did we agree on last January?” moments (although, this depends on the law governing the contract).

Surety contracts

If someone is promising to cover someone else's debt, that agreement must be in writing. Oral promises won’t cut it when it comes to guaranteeing another person’s loan.

Read: 7 common contract mistakes that could cost your business thousands

The essentials still apply

Just like with written contracts, oral agreements need the core elements of a contract to be legally binding:

1. Offer and acceptance: One person proposes a deal, and the other says, "Sure, I'm in!" Simple as that.

2. Consideration: Both sides need to give something of value, whether it’s cash, goods, services, or a promise not to do something. No consideration? No contract.

3. Intention to create legal relations: Both parties must genuinely intend for their agreement to be legally binding. Casual promises don’t count.

4. Capacity: Everyone involved must be capable of making a legal agreement. This means no minors, no one under duress, and no one who’s had a few too many margaritas.

5. Lawful purpose: The contract must be for a legal activity. No court will enforce an oral contract for something illegal.

How to prove an oral contract

Alright, so you’ve got an oral agreement, but now you need to prove it exists. Here are some tips:

• Witnesses: Did someone else hear you make the agreement? Witnesses can help back up your version of events.

• Follow-up in writing: Send an email or text confirming the details of what you discussed. “Hey, just to confirm, we agreed you’d supply 100 artisanal cupcakes by Friday, right?”

• Partial performance: If either party has started doing what was promised, that can be proof a contract exists. For example, if you started delivering those cupcakes, that action supports your claim.

Should you rely on oral contracts

While oral contracts can be legally valid, they’re usually not the safest bet. Here’s why:

• Memory fades: Over time, people forget details. You might remember agreeing to a fee of $1,000, while the other party remembers it being $100.

• No written evidence: Without something in writing, there’s often little to fall back on in a dispute.

• Complicated enforcement: Even if a court accepts your proof, the process of proving an oral contract can be costly and time-consuming.

So, while they work in a pinch, for anything important or valuable, do yourself a favor and get it in writing.

Read: Why you should always have a contract when doing business

Conclusion

Yes, oral contracts are legal, but that doesn’t mean they’re always a good idea. They can be a quick and easy way to make small agreements, but for anything significant, having things in writing is your safest bet. Written contracts provide clarity, reduce misunderstandings, and offer a clear record if things go sideways.

So, next time you’re tempted to seal a deal with a handshake and a smile, think twice. Get it in writing—your future self will thank you for it. And if you’re ever unsure, don’t hesitate to consult with a legal professional or use contract review tools like Cobrief to make sure you’re on solid ground.

How Cobrief can help with contract review

Reading your business contracts can feel overwhelming as an owner-manager of a small to medium-sized business. That’s where Cobrief comes in. Cobrief helps business owners and operators review their business-to-business contracts for legal risks.

Upload your contract to Cobrief's AI contract review software, click review and you’ll get a list of all the risks, in plain English. This helps you decide whether to sign, negotiate or reject the terms of your contract, or hire a lawyer. Think of it as a heat map for your contracts.

Get started here.