In a fast-paced world where deals can be made over coffee and agreements sealed with a simple handshake, the question arises: Are these informal agreements legally binding? In California, they can be.
Although such agreements are brittle compared to written contracts, they can be legally binding—and therefore enforceable. If you’ve ever wondered about the nature of oral contracts and how they could play a role in your business, it may be beneficial to learn more about this topic. You might find that you’re putting your company at risk or that another party may be liable for breach of an oral contract with you.
What Is a ‘Handshake Agreement’?
A handshake agreement, also known as an oral agreement or verbal contract, is a deal made between parties without any formal written documentation. It relies solely on spoken words and the traditional gesture of shaking hands to signify mutual consent and agreement. While handshake agreements lack the formality of written contracts, they can still carry legal weight under certain circumstances.
Oral contracts can be valid in California as long as they meet the criteria for a legally binding contract. That means the contract must convey an offer, consideration, and acceptance of the offer between parties who understand the agreement’s terms and have the legal capacity to enter into such an agreement.
Enforceability of Handshake Agreements in California
Oral contracts that meet the above-mentioned criteria may be enforceable in California, but that could be easier said than done to accomplish. When an aggrieved party alleges a breach of an oral contract, the burden of proof for proving the existence of the contract, its terms, and its acceptance rests with them.
As you might imagine, finding evidence that supports the existence of an oral contract might be difficult, but it’s not impossible. Witness testimony and documentation that can include text messages, voicemails, and emails can all be used to support the alleged existence of an oral contract.
Beware of Recording Conversations
Recordings of conversations can also be considered evidence, but only if such conversations are legally obtained. California is a two-party consent state, which means both parties to a private conversation must know and agree to a recording of the conversation.
Surreptitious recordings may not be admissible as evidence in a civil lawsuit and may even result in criminal charges.
Not All Oral Contracts Are Legally Binding
The Statute of Frauds is a legal doctrine that requires that certain types of contracts be written to retain enforceability. In California, the Statute of Frauds is codified in statutory law and encompasses various types of contracts that must meet specific requirements to be legally binding.
Types of contracts covered by the statute of frauds in California:
- Contracts for the sale of real property: Any agreement for the sale or transfer of real estate or any interest in real property must be in writing to be enforceable. This requirement includes contracts for the purchase of land, homes, commercial properties, and leases exceeding one year.
- Contracts not performable within one year: Contracts that can’t be performed within one year from the date they were made must be in writing. This provision applies regardless of the actual duration of performance; if there is any possibility that the contract could extend beyond one year, it must be in writing.
- Contracts for the sale of goods over a certain dollar amount: Under the Uniform Commercial Code (UCC), contracts for the sale of goods priced at $500 or more must be in writing to be enforceable. This provision applies to transactions involving the sale of tangible personal property, such as merchandise, equipment, and inventory.
Oral contracts concerning the issues above may not be legally enforceable even if they otherwise meet the criteria for an enforceable contract.
Consult an Attorney for Legal Guidance
If you’re a business owner and have a legal matter involving an oral contract to consider, it’s best to consult with a business attorney. Only an experienced legal professional can provide you with the seasoned knowledge and skills you can rely on for personalized guidance.
We at Purdy & Bailey, LLP offer more than 65 years of combined legal experience, which means we are well-suited to address your company’s legal needs. If you want to learn more about how we can assist you, reach out to us today and request a courtesy evaluation from our team.
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