How To Create And Enforce An Oral Agreement In Texas

How Is An Oral Agreement Formed in Texas?

An oral contract is a form of contract that is not written down and, under Texas law, most oral agreements are legal and enforceable. Whether written or oral, for a contract to be valid in Texas, it must include the following elements:

• An offer;
• an acceptance in strict compliance with the terms of the offer;
• a meeting of the minds;
• each party's consent to the terms; and
• execution and delivery of the contract with the intent that it be mutual and binding.

For an oral contract, the intent or offer is made through actions and words. Written contracts generally trump an oral contract and while oral contracts may be difficult to prove in a court of law, a judge will typically look to communication between parties and the circumstances surrounding each. No documentation is too small as evidence to support an oral contract claim and most cases are determined by the communication.

Requirements For An Oral Offer of Contract To Be Valid

In 2012, the Houston Court of Appeals awarded an employee $42,500.00 in damages based on a breach of an oral contract between her and the employer. This oral contract had promised her an end-of-year bonus for her work performed during the previous calendar year. The employer took a stance against her, arguing the employee “might” receive a bonus. Despite his plea, the court stated there was sufficient evidence of the oral contract between the employee and the employer, thus legally binding the oral contract.

Oral promises can result in unwanted circumstances, so choose your words wisely! Texas courts do not have issues with enforcing oral contracts or promises if they find sufficient evidence to prove so. For such an offer to be valid one need only prove the following:

• there was intent to make an offer;
• terms of the offer were clear and definite; and
• there was communication of essential terms.

What Is The Texas Statute of Frauds? 

Despite oral contracts being enforceable, Texas law and the Texas Statute of Frauds require certain dealings to be in writing. The statute of frauds, set forth in Section 26.01 of the Texas Business and Commerce Code, provides that to be enforceable, a promise or agreement which cannot be performed within one year from the date of making the agreement must be in writing and signed by the person to be charged with the promise. Tex. Bus. & Com. Code Ann. § 26.01(b)(6); Niday v. Niday, 643 S.W.2d 919, 920 (Tex. 1982). Whether a contract falls within the statute of frauds is a question of law. Beverick v. Koch Power Co., 186 S.W.3d 145, 149 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).

Contacts That Must Be In Writing To Be Enforceable

The following documents and agreements are per se unenforceable as oral contracts (i.e. these agreements must be in writing):

• Marital agreements;
• Medical/healthcare agreements;
• Promises to pay debts or damages of a decedent;
• Agreements between attorneys or parties regarding pending lawsuits;
• Agreements with a duration of more than one year;
• Commission agreements related to certain oil, gas or mineral agreements;
• Contracts for the sale of goods for $500 or more;
• Contracts for sale of real estate or commissions from a real estate sale;
• Guaranty agreements; and
• Loans from financial institutions.

The enforceability of a written or oral contract is typically fact dependent and, just because you believe an agreement was made orally, the list above is not without exception. It important you seek proper legal counsel before making a final decision as to whether your intended contract is or is not enforceable. For example, the statute of frauds would not apply if performance could conceivably be completed within one year of the making of the oral agreement. Miller v. Riata Cadillac Co., 517 S.W.2d 773, 776 (Tex. 1974) (contract to pay employee bonus after approximately one year could theoretically be performed before year expired); Young v. Fontenot, 888 S.W.2d 238, 241 (Tex. App.—El Paso 1994, writ denied) (agreement to transfer stocks at unspecified date in future was performable within one year and therefore not within statute).