An arrangement can be as simple as a handshake agreement or an oral understanding over coffee. When two parties form an agreement without written documentation, is that agreement legally binding? The answer, generally, is yes, unless the agreement is required to be in writing by the New York State Statute of Frauds. The problem with oral contracts is they can be difficult or impossible to prove. It becomes a matter of one person’s word against the other. In addition, as with any contract, in order for the agreement to be enforceable there cannot be a valid defense to its enforcement, such as lack of mental capacity of a party or a party is a minor.
New York State has the New York Statute of Frauds, found in General Obligations Law § 5-701 through § 5-705. The New York Statute of Frauds identifies certain agreements that will not be enforceable unless there is a writing.
When you Need to Have Something in Writing
Examples of agreements that require a writing under the New York Statute of Frauds include (i) agreements that cannot “be performed within one year from the making thereof ,” (ii) a promise to be bound by the debt of another; (iii) and agreement “made in consideration of marriage, except mutual promises to marry;” (iv) the sale or conveyance of real property, (v) payment of finder’s fees; for “goods sold at public auction;” (vi) payment of services in negotiating a loan or an exchange; and (vii) an agreement to pay for services in negotiating the sale of real estate or a business opportunity.
An example of an agreement that does not require a writing would be an agreement between an artist and art collector to sell an existing sculpture for $1,000. The offer is to sell the sculpture, and the bargained-for exchange is $1000. Because this transaction can be done within a year and does not fall within the parameters of the other conditions of New York’s Statute of Frauds, this agreement is a legally binding and enforceable oral contract (if it an be proved). There does not need to be any writing for this agreement to be binding.
Conversely, assume the artist offers a sculpture of whoever becomes the United States President in the year 2032, to be created after the President’s first day in office and to have a price of $1,000. The art collector agrees, and they shake hands. In this example, there is no way to complete the assignment within a year if the agreement is made in 2022. Consequently, the oral contract is not enforceable under the New York Statute of Frauds unless there is some type of note or memorandum in writing documenting the agreement.
Proving Oral Contracts
The most important issue with breaches of oral contracts is proving that the agreement existed and its terms and conditions. This can be done using the testimony of a witness present during the formation of the agreement or by showing that the actions of a party are evidence that the party was acting in accordance with an agreement.
In the case of the second example above (the sculpture of the 2032 U.S. President), a “writing” for purposes of overcoming the Statute of Frauds does not have to be formal. It could include notes that detail the conversation or even text messages indicating a meeting took place and what was discussed. Courts have upheld the argument that email exchanges between the parties regarding an agreement are sufficient to constitute a “writing” for purposes of the Statute. One early case, Crabtree v. Elizabeth Arden, held that notes or memorandum can be pieced together to evidence an agreement.
Conclusion
Oral contracts are enforceable in many instances. However, proving the existence of an agreement and its terms can be difficult or impossible if the there is nothing written down. A formal “writing” is not required if the existence of the agreement and the terms can be pieced together from multiple “writings” or other evidence, including actions taken by the parties in reliance upon there being an agreement. All that said, our strong advice is that you put your important agreements in writing and have a lawyer make sure they are enforceable.