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Enforceability of Oral Auction Contracts
An oral contract, also known as a verbal contract, is a contract that is not confirmed in writing or record signed by the parties. If you offer to buy my favorite t-shirt for $200 and I accept your offer, and we do not put it in writing, for example, that is an oral contract.
What if I take your $200 but refuse to give you the shirt? Or if I give you the shirt and you refuse to pay the $200? An oral contract may be enforceable, depending on the circumstances.
There are situations where a contract is required to be in writing to be enforceable. Even when a written contract is not required, however, having a written contract is the best practice. There are several reasons why having a written agreement is better.
These reasons include, but are not limited to, the following:
• The risk that the contract will not be complete and leave out essential terms.
• The risk that the terms may be unclear, ambiguous, or misunderstood.
• It is difficult or almost impossible to prove oral contracts due to different perceptions, memory issues, and the integrity of witnesses.
• There may be limitations to the contract if one party dies or becomes incompetent.
Some oral contracts will not be enforceable unless there is a writing or record signed by the parties to confirm it. These contracts have a higher risk of fraud and must be confirmed in writing to be enforceable. The term generally used to describe statutes that require certain agreements to be in writing is the Statute of Frauds.
Contracts that must generally be in writing include, but are not limited to, the following:
• The sale of land, a home, or an interest in land (this will include easements and options to purchase land).
• Lease agreements.
• Contracts that may last more than one year.
• Goods being sold for more than $500.00 (this amount may vary from state to state).
• Agreements creating a security interest.
How detailed does the writing or record does it have to be? It depends on the type of contract. Contracts relating to real estate must be detailed and specific.
They should include all of the essential terms relating to the sale. Contracts for the sale of goods under the Uniform Commercial Code (UCC), however, are at the other end of the spectrum. These contracts do not need to be as specific or detailed (because the Uniform Commercial Code will presume or fill in details left out). Let's examine the Statute of Frauds contained in Article 2 of the Uniform Commercial Code. Several states have the following provision enacted. It provides:
Except as otherwise provided in this section, a contract for the sale of goods for the price of five hundred dollars ($500) or more is not enforceable by way of action or defense unless there is a record sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by the party's authorized agent or broker. A record is not insufficient because it omits or incorrectly states a term agreed upon. Still, the contract is not enforceable under this section beyond the quantity of goods shown in the record.
Other states have amounts like $1,000.00 or $5,000.00.
This section requires a "record sufficient to indicate that a contract for sale has been made between the parties and signed by the party against whom enforcement is sought or by the party's authorized agent or broker."
The language in this section does not require a full written contract but a record sufficient to indicate that a contract for sale has been made between the parties.
The record under Section 2 of the UCC may even omit certain terms or information and still be enforceable. That is because the UCC has default provisions that will supplement the contract. These terms become part of the contract, whether the parties know it or not, unless they agree otherwise. The record required need not contain all the material terms of the contract, and the material terms that are stated need not be precise. All that is required is that the record affords a basis for believing that the offered oral evidence rests on a real transaction. It does not need to indicate which party is the buyer and which party is the seller. The only term which must appear is the quantity term, which need not be accurately stated. Still, recovery is limited to the amount stated. The
price, time, and place of payment or delivery, the general quality of the goods, or any particular warranties may all be omitted.
The UCC has "gap fillers" that will be applied to fill in everything except the quantity. Auctioneers should exercise caution and be aware of the UCC terms that will apply unless otherwise specified.
The record may be written in lead pencil on a scratch pad, entered into a laptop computer, a digital or electronic contract, or a memorandum of contract. The record could also be emails, text messages, online chat, or other things.
Oral contracts are valid and enforceable in some situations, even in the context of an auction. There are challenges, however, to proving the existence of an oral contract and its terms.
Some types of contracts must be in writing or have a sufficient record in order to be enforceable. The best practice is to have a written record for all contracts.