oral contract

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A type of contract that is verbally created or verbally modified without being recorded in writing. Such contracts are sometimes called parol contracts. Oral contracts may fail under different circumstances as set forth by the various statutes of frauds in each state or under the UCC, which each require that certain oral contracts or certain terms included therein be memorialized in writing to be considered valid.    

All states have some statute of frauds that limits the scope of which oral contracts may be considered valid. California’s statute of frauds, California Civil Code § 1624, generally requires that contracts which sell real property or property interests, secure long lease periods, or stipulate performance or authorize another’s performance in the distant future must be written to be valid.

Additionally, California’s statute sets forth multiple exceptions that allow a valid agreement or contract to not fail for lack of memorialization, so long as they are qualified financial contracts and are either supported by sufficient evidence to prove their existence or a prior or subsequent written contract indicates the parties’ intent to be bound by those qualified financial contracts by the time the final agreement is made.

[Last updated in July of 2020 by the Wex Definitions Team]