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Oral Contracts



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One of the most misunderstood and confusing forms of contract today is the oral contract. The old saying that “an oral contract is worth the paper it is written on” is still true to some extent, but there are historical presidents of oral contacts being enforced, even when they result in millions of dollars changing hands. However, this is the exception, not the rule, so if you have a chance to get something in writing, do it. An oral contract only invites trouble.

For obvious reasons, an oral contract is extremely difficult to prove in court since there is no real “proof” of the verbal agreement being made. It is essentially your word against someone else’s. Most people who use oral contracts do so because they are entering into a contact with someone they know and trust; someone who they believe they don’t need a stuffy, overly formal written contract with, but as anyone who has any experience in money matters can tell you, friendships dissolve and partnerships disappear when large sums of money are involved. In an overwhelming number of cases, oral contacts are tossed out of court due to lack of evidence, but that isn’t always the case.

In a famed court case from 1984 known as Penzoil vs. Texaco, industry giant Getty Oil was sold via a handshake deal and oral contact to Penzoil, only to have Getty renege on the deal when a larger, formal offer was given by Texaco. The judge in the case sided with Penzoil and the deal was consummated thanks to the oral contract.

So, this begs the question, will your oral contact be honored or will it be tossed out? The safest answer is to not ever find out and to use a written contact whenever you can.

If you do find yourself going to court to try to enforce an oral contact, you should bring any and all evidence that you have with you, even if it is nothing more than some scribbles on a cocktail napkin that you made with the other party in the process of negotiating your oral contact. The judge understands that these written details do not constitute a contact on their own, but if you can show a process that was begun and followed through, you will have a much better chance of having your oral contact enforced than if you show up empty handed and simply accuse someone of agreeing to an oral contact.

Case law also points to the fact that you may not have much time to enforce your oral contract compared to the time you would with a written contract, so if you feel that you need to pursue legal action to have your oral contact enforced, it is better to act quickly.

The world of oral contracts is a bit complicated and can be downright confusing, so if at all possible, avoid using them in favor of traditional, written contracts that are much easier to enforce.



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