Oral contracts may seem like relics from a bygone era, but believe or not, they are still honored as a valid means of doing business in Texas. So if you’re the old-fashioned type who prefers to seal your deals with a jovial handshake instead of a John Hancock, rest well knowing your home state has your back. Of course, this comes with a caveat: While it’s possible to create a binding oral deal in Texas, you better be sure your agreement meets all the stipulations for a valid contract before you take anything to the bank.
Some of the most basic elements of a valid contract are fairly obvious: There must be a formal offer that outlines the deal, followed by an acceptance from the other party on the exact same terms. That last part is crucial. If the other party comes back with terms that are even slightly tweaked, a court may construe this as a counteroffer rather than an acceptance, and the whole thing can be voided.
Contracts also require a legal concept called consideration, which essentially means “something for something.” Each party must clearly gain a benefit from the terms of the deal in order for it to be a binding contract. If I offer to fix your leaky roof for $300 and you accept, chances are we have a valid contract because we both get something – I get the money, and you get a leak-free roof. But if I offer to fix your roof out of the kindness of my heart, there is no consideration because I get no obvious benefit from the deal. These arrangements are called gratuitous promises, and courts don’t enforce them.
The subject matter of the contract also has to fit into certain parameters. First, it has to be legal, meaning any terms regarding illicit activities like gambling, drug dealing, or prostitution isn’t going to stand up. And lastly, the subject matter can’t be anything listed in Texas’ “Statute of Frauds,” which outlines certain types of contracts that must be in writing and signed by the bound party in order to be enforced. Some (but not all) of the contracts that fall under this umbrella include real estate sales, promises to answer for the debt of another person, and any contract that will not be performed within a year of the agreement date. For a complete list of contracts that must be in writing, see Chapter 26 of the Texas Business and Commerce Code.
Finally, if your oral agreement meets these basic requirements, there’s a chance it will hold up in a court of law… assuming you can prove it. And therein lies one of the toughest challenges with enforcing oral contracts: establishing that they actually exist. The terms and acceptance of an oral deal can be difficult to prove in court, unless you have several ready and willing witnesses to testify on your behalf. So even if you’re fairly certain you’ve made a binding oral agreement with an associate, it rarely hurts to get the terms of the deal down in writing just to be safe.
