In a perfect world, every agreement would be detailed in a writing and signed by the persons making it. There would be no surprises to either party. However, given the imperfect nature of human behavior, many agreements are made orally and "signed" with a handshake.
Is a verbal contract binding in Maryland? Is it enforceable? The general rule in Maryland is that a verbal contract can be enforced. However, the state statute of frauds mandates that some specific types of contracts must be in writing to be enforceable. As with every law, there are exceptions.
Contract Law in Maryland
In Maryland, not every agreement between two people will be considered by the court to be a binding contract. First, both parties must be at least 18 years old and competent to make contracts.
In addition, contracts, whether oral or written, must include four essential elements to be enforceable under state law. These elements are:
- An offer.
- An acceptance.
- Some consideration.
- Mutual assent.
Key Terms in a Contract
Each of these terms has a specific meaning under the law:
Offer: A promise to act or to refrain from acting in exchange for some consideration.
Acceptance: When the other party unequivocally agrees to the terms of the offer.
Consideration: The "price" the accepting party pays. This doesn't have to be money, but it must be something of some value. In effect, each party must get something of value from the exchange, although minimal value is all that is required.
Mutual assent: Both parties were willing to enter into the contract when it was formed and intended to form a binding contract.
For verbal agreements, there are additional requirements in Maryland. For these contracts to be enforceable, their agreed-upon terms must include a clear definition of what constitutes a breach of contract. In addition, the terms of the oral contract must include a means of restitution for default.
Maryland Statute of Frauds
Maryland, like other states, has a law called the statute of frauds. This law has been carried over from common law and sets out the types of contracts that must be in writing to be enforceable.
The Maryland statute of frauds lists the types of contracts that must be in writing to be enforced by the court. They are:
- Any sale of goods for a sum exceeding $500.
- Any sale of a legal interest in real property.
- Any contracts, including property leases, that are not possible to complete in less than a year.
- Any agreement made on consideration of marriage.
- Any surety contract, where one person assumes someone else's debt.
Statute of Frauds Exceptions in Maryland
Most laws have exceptions, circumstances in which the letter of the law will not be applied. This is the case with the statute of frauds. In general, the exceptions to the Maryland statute of frauds are situations in which failure to enforce the contract because it is not in writing would create an unfair outcome for one of the parties.
There are many circumstances that fit into these parameters. A few of the most commonly used exceptions to the statute of frauds are:
- Partial performance: The contract has been partially performed, making it inequitable if the other party doesn't put up their consideration. For example, the courts may enforce an oral contract for sale of land despite the statute of frauds when one party has paid part of what was due, took possession of the land, and made permanent changes to the real estate. Courts tend to recognize an exception in situations where they cannot easily return the parties to their pre-contract conditions.
- Promissory estoppel: Promissory estoppel occurs when one party relied on the other party's promises to take some action and will suffer harm if the contract is not enforced. Again, the court recognizes this exception when the only way to avoid committing an injustice is to enforce the contract.
- Admission: A party cannot both admit that they made an oral agreement and also claim that they don't have to perform because of the statute of frauds. This kind of admission is recognized as creating an exception.
- Memorandum prepared: Like the admission exception, this is a matter of equity. If the contract is between two parties, the existence of a memorandum between the two parties laying out the subject of the oral contract can invalidate a statute of frauds defense.
- Personalized items: This exception to the statute of frauds applies only to contracts for the sale of goods. If a party to the oral contract orders personalized items from another party, payment will be enforced even if the value of the goods exceeds $500. The courts justify this exception because nullifying the contract would place an unjust burden on the party that customized the goods. Finding a purchaser for the customized goods would likely be difficult, if not impossible.
Issues With Oral Contracts
Why do states require that certain contracts be set out in writing? According to Maryland courts, the purpose of the statute of frauds is to protect against fraudulent claims. Since there is no writing setting out the terms of an oral contract, anyone can claim the existence of one.
And there are many good reasons, outside of the statute of frauds, to spell out a contract in a written document. Proving the existence and terms of a verbal contract is extremely difficult, especially if the parties don't have the same recollection of the agreement terms, and the conversation was not recorded.
Witnesses can help to establish the contract terms, but only if they are impartial. If any third party overhears the terms of the agreement, it is usually someone associated with one of the parties, making their statements suspect.
A Contract Must Be Clear and Definite
Maryland courts require more than general testimony about an oral contract. They only enforce oral contracts if the terms of the contract were sufficiently clear to inform both parties as to their obligations. To that end, Maryland law requires that an oral contract be sufficiently clear and definite in order that the courts be able to know the purpose and intention of the parties.
Teo Spengler earned a J.D. from U.C. Berkeley's Boalt Hall. As an Assistant Attorney General in Juneau, she practiced before the Alaska Supreme Court and the U.S. Supreme Court before opening a plaintiff's personal injury practice in San Francisco. She holds both an M.A. and an M.F.A in creative writing and enjoys writing legal blogs and articles. Her work has appeared in numerous online publications including USA Today, Legal Zoom, eHow Business, Livestrong, SF Gate, Go Banking Rates, Arizona Central, Houston Chronicle, Navy Federal Credit Union, Pearson, Quicken.com, TurboTax.com, and numerous attorney websites. Spengler splits her time between the French Basque Country and Northern California.