Oral contract
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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 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.
[edit] Texaco vs. Penzoil case
Samuel Goldwyn said, "An oral contract is as good as the paper it's written on," but this is not 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.
