Oral Contract or Agreement to Agree?
Oral Contract or Agreement to Agree?
Generally, a contract need not be written to be valid and enforceable under California law unless the subject matter of the contract is subject to California’s statute of frauds. However, where the parties intend that an agreement be reduced to writing, a written agreement is necessary.
Contract Formation and Mutual Assent
Creating a contract requires that four elements be met: (1) mutual assent, (2) the capacity to contract, (3) a lawful object of the contract, and (4) consideration. Mutual assent means that the parties come to an agreement on all material terms of the contract. A material term is one that concerns significant issues such as the subject matter of the contract, the price, terms of payment, etc.
Written Agreement as a Material Term
“Agreements to agree” are not binding in California. Nor are preliminary negotiations the same as a valid agreement. Therefore, where the parties intend to put their agreement into a signed writing, no contract is formed until that later written agreement is executed. Failure to sign a subsequent written agreement means that no contract existed.
Whether the parties have created a binding oral contract, or merely an agreement to agree at a later date depends on the surrounding facts and circumstances of the particular case. Key evidence in these situations includes the actions taken by the parties.
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