Many people believe that you can't make a contract on a handshake, but in fact, many verbal agreements are enforceable in a court of law. The difficulty is in proving the terms of the agreement, as such cases often boil down to a he-said, she-said argument.
Generally, verbal contracts are enforceable, but they are difficult to enforce because the only evidence is your word against someone else's. Verbal contracts may not be enforceable for specific things, such as repayment of money over a certain dollar amount.
Elements of a Contract
For a court to enforce a contract, the person suing for breach of contract must be able to show that a legally binding contract actually exists. The four elements of a contract are an offer, acceptance, consideration and mutuality. Consideration is what is given to form the contract. For example, one party may promise to pay money, while the other promises to provide a service in exchange. Mutuality means that there is a "meeting of the minds" between the parties. They must be on the same page when it comes to the material terms of the contract, such as the subject matter, price and quantity of any goods that are part of the contract. If any of these elements are lacking, there is no valid contract, and the court will not enforce it.
Proving the Contract's Existence
Oral agreements that meet the requirements of a contract are generally enforceable, as long as they can be proven. You'll need evidence such as a record of payment or proof that someone has supplied goods or services to uphold their side of the bargain. Witnesses may also be able to support the existence of a contract, but hearsay issues may arise. Other communications between the parties such as text messages, emails or letters also can support the legal theory that a contract had been formed.
The Statute of Frauds
The Statute of Frauds is an old "law of the land" that most states still follow today. To comply with the statute of frauds, certain contracts must be in writing or they will not be enforceable. These include contracts for the sale of real estate or other interest in land, contracts for the sale of goods for $500 or more, marriage contracts, contracts ensuring that a person will pay another's debt if he does not and contracts cannot be performed within one year of the contract's formation. So if you verbally agree to sell your house to your neighbor and he backs out before there is a written agreement of sale, the contract is generally not enforceable in court. However, there are exceptions to some of these rules. If the aggrieved party can show detrimental reliance, a contract may be implied by the court. That is, if you agree to sell your house to your neighbor and you take reasonable steps to make that happen, spending a lot of money to get everything ready for the sale because you're relying on his promise, you may be able to enforce the agreement as long as your reliance was reasonable. State laws vary with respect to this type of claim.
Statute of Limitations
Even if there is a valid contract, the court can still refuse to enforce it if the statute of limitations has expired. A statute of limitations is a deadline by which a lawsuit must be filed if you're suing for breach of contract. If the deadline has passed, your case can be dismissed. The statute of limitations for verbal contracts usually is shorter than the statute of limitations for written contracts. However, the statute of limitations can be lengthened in certain circumstances, such as when fraud is involved. States set their own statutes of limitations for most causes of action.