Oral contract
Encyclopedia
An oral contract is a contract
the 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 have agreed – but the contract itself is not 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 is found in the Statute of Frauds
.
Similarly, the limitation period prescribed for an action may be shorter for an oral contract than it is 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 is agreed to using words, either written or spoken, as opposed to an implied contract.
said, "An oral contract is as good as the paper it's written on," but this is not always the case. Oral contracts, when done correctly before witnesses, can be enforced. 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. Pennzoil filed a lawsuit alleging tortious interference
with this oral contract, which the court upheld and awarded $11.1 billion in damages, later reduced to $9.1 billion, but increased again by interest and penalties.
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
the 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 have agreed – but the contract itself is not 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
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
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 is found in the Statute of Frauds
Statute of frauds
The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a signed writing with sufficient content to evidence the contract....
.
Similarly, the limitation period prescribed for an action may be shorter for an oral contract than it is for a written one.
The term verbal contract
Verbal contract
A verbal contract is any contract which is expressed in words .This contrasts with a contract which is implied by actions of the parties. An implied contract can be either implied in fact or implied in law. A contract which is implied in fact is one in which the circumstances imply that parties...
is sometimes incorrectly used as a synonym for oral contract. However, a verbal contract is one that is agreed to using words, either written or spoken, as opposed to an implied contract.
Texaco vs. Pennzoil case
Samuel GoldwynSamuel Goldwyn
Samuel Goldwyn was an American film producer, and founding contributor executive of several motion picture studios.-Biography:...
said, "An oral contract is as good as the paper it's written on," but this is not always the case. Oral contracts, when done correctly before witnesses, can be enforced. For example, In 1984 after Getty Oil
Getty Oil
Getty Oil is an oil company founded by J. Paul Getty. It was at its height during the 1960s. In 1971, the Getty Realty division was formed to manage the real estate needs of Getty stations. The division was later spun off, but now owns the rights to the Getty brand...
was sold to Pennzoil
Pennzoil
Pennzoil is an American oil company founded in Los Angeles, California in 1913. In 1955, it was acquired by Oil City, Pennsylvania company South Penn Oil, a former branch of Standard Oil. In 1963, South Penn Oil merged with Zapata Petroleum; the merged company took the Pennzoil name. During the...
in a handshake deal, Texaco
Texaco
Texaco is the name of an American oil retail brand. Its flagship product is its fuel "Texaco with Techron". It also owns the Havoline motor oil brand....
made a higher offer, and the company was sold to Texaco. Pennzoil filed a lawsuit alleging tortious interference
Tortious interference
Tortious interference, also known as intentional interference with contractual relations, in the common law of tort, occurs when a person intentionally damages the plaintiff's contractual or other business relationships...
with this oral contract, which the court upheld and awarded $11.1 billion in damages, later reduced to $9.1 billion, but increased again by interest and penalties.