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Is an oral contract binding?

QUESTION:

My son’s high school history class is doing a short section on the law. He was talking about "contracts" the other day and said that if one person agrees to sell another a home, the deal is "a done deal" because an "oral" contract has been entered into. Is he correct?

ANSWER:

No. A contract for the sale of real estate must be in writing. And it must meet five additional requirements that are the same for all contracts, whether they are oral or written.

First, there must be agreement. This means that the terms of the contract must be acceptable to both parties. The completion of the formal real estate sales contract meets the requirement of "agreement" because it is so precise. In fact, it is called a sales agreement.

Second, there must be consideration. Something of value must be exchanged for the property. This is usually money. This money does not have to be paid at the time that the contract is written, of course, just so long as the promise to pay is part of the contract. It is customary for a deposit to accompany the offer, just to show that the buyer is earnest about his offer. Properties are sometimes traded, one for another. Although money does not change hands, the contract is still legal.

Third, both parties must have the capacity to enter into a contract. Mentally incompetent persons, for example, cannot enter into contracts. This includes the insane or someone under the influence of alcohol or drugs. Children can enter into contracts, but they are usually voidable at the minor’s option.

Fourth, the contract must be free of mistakes, fraud, duress, misrepresentation or undue influence. The mistake must be substantial. The street address of a house that is completely different from the house being sold is a substantial mistake. A slight misspelling of the street name is probably not.

Misrepresentation is an innocent misstatement of a material fact, without intent to deceive. A statement that a lot does not flood, only to have a hurricane cause flooding, is a misrepresentation. Fraud occurs when something that is clearly inaccurate is presented as fact. For example, stating that a boat dock was built for $20,000, when, in fact, it was built for $5,000 is fraud. Stating that the boat dock is worth $20,000 is an opinion.

Fifth, whatever the contract binds the parties to must be legal. Property cannot be sold in order to cause injury to the public or to break a law.

This information is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.

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