Everything about Oral Contract totally explained
An
oral contract is a
contract that terms of which have been agreed by spoken communication, in contrast to a written contract, where the contract is a written document. There may be written, or other physical evidence, of an oral contract – for example where the parties write down what they've agreed – but the contract itself isn't a written one.
In general, oral contracts are just as valid as written ones, but some jurisdictions either require a contract to be in writing in certain circumstances (for example where
real property is being
conveyed), or that a contract be evidenced in writing (though it may be oral). An example of the latter being the requirement that contract of
guarantee be evidenced in writing that's found in the
Statute of Frauds.
Similarly, the limitation period prescribed for an action may be shorter for an oral contract than it's for a written one.
The term
verbal contract is sometimes incorrectly used as a synonym for oral contract. However, a verbal contract is one that's agreed to using words, either written or spoken, as opposed to an implied contract.
Texaco vs. Penzoil case
It has been said, "An oral contract is as good as the paper it's written on," but this isn't always the case. For example, In 1984 after Getty Oil was sold to
Pennzoil in a handshake deal,
Texaco made a higher offer, and the company was sold to Texaco, but a lawsuit by Pennzoil put them in a winning position, being awarded $11.1 billion, later reduced to $9.1 billion, but increased again by interest and penalties.
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