Laws on Oral Contracts in California

By Patrick Gleeson, Ph. D., Registered Investment Adv
Two people shaking hands on a verbal agreement.
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The California Civil Code covers contract law in the state. It allows oral contracts -- stated agreements between two or more parties not put in writing and signed. Certain kinds of agreements, however, may not be settled by oral contracts. The statute of limitations on oral contracts in California is for two years, not the four years allowed for written contracts. How enforceable an oral contract may be depends upon the circumstances of the agreement.

The Essence of the California Civil Code, Sections 1619-1633

Section 1619 of the CCC states that contracts can be express or implied.

An express contract is any contract stated in words.

Section 1622 states that:

"All contracts may be oral, except such as are specially required by statute to be in writing."

Section 1624 specifies the various contracts that may not be oral, but must be in writing. These are numerous and detailed. Before assuming the validity of an oral contract, read Section 1624 carefully. In general, most real estate contracts must be in writing. Oral contracts must be performed within a year of the agreement. Most -- though not all -- contracts for amounts greater than $100,000 must also be in writing. A loan agreement by a professional lender, for example, must be in writing unless the money will be used for "personal, family or household purposes."

The Statute of Limitations on Oral Contracts

Statutes of limitation put time limits on legal actions. In California, most civil actions based on a written contract can be brought to court at any time within a four year period commencing with the alleged contract violation. Oral contracts in California, however, are governed by CCC 339, which states that with few exceptions an action not arising from a matter "founded upon an instrument of writing," can be brought only within a two year period from the alleged violation. This means, for example, that an oral agreement made in 2005 could be brought to court in 2015 if the plaintiff successfully argues that the violation occurred less than two years before the suit is filed.

The Weaknesses of Oral Contracts

An obvious problem with enforcing an oral contract is proving it ever existed. Residential lease agreements, for instance, are one exception to the general rule in California that real estate agreements must be in writing. If the landlord claims the tenant agreed not to play live music and the tenant argues that he's a professional musician who rented the apartment specifically because the landlord agreed he could practice during certain hours, the outcome of a suit becomes uncertain absent a contractual agreement.

Even if the existence of the contract is agreed by all parties, the same problem extends to the details of the agreement. The landlord may claim that the tenant agreed to practice only between the hours of nine to five; the tenant may claim the agreement allowed him to practice until 10 p.m.

Because the existence and terms of oral agreements are always difficult to verify, they are inherently difficult to enforce.

How to Make Oral Agreements Stronger

Even when no written contract exists, many oral contracts are associated with something in writing that tends to strengthen a party's claim. An oral lease agreement, for example, becomes more plausible if one of the parties can show the court copies of rent checks. Witnesses to the agreement also strengthen a claim, especially if the witness has no demonstrable interest in the outcome. If an employer fails to keep a file on a troublesome employee, for example, she may still strengthen her defense in a wrongful termination suit by presenting the testimony of customers. Employee testimony may be given less weight because it can be argued that it is in the interests of employees to support the testimony of their employer.

About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.