“An oral contract is as good as the paper it is written on.” This is simply not true in Texas.
In fact, a Texas jury awarded $11 billion dollars in damages to Pennzoil when Texaco interfered with an oral contract for the sale of Getty Oil to Pennzoil, one of the largest jury verdicts in U.S. history.
While it is true that some contracts must be in writing, such as the sale of real estate, Texas courts will enforce many oral promises.
To understand the concept of an oral contract, we first need to know the elements of a valid contract.
The elements of a valid contract under Texas law
According to Texas law, a contract is a promise(s) with legal consequences that are formed when an offer is made, the offer is accepted and valuable consideration (money, services, etc.) is exchanged for the promise(s).
In determining the existence of an oral contract, Texas courts look to the communications between the parties and to the acts and circumstances surrounding those communications. Furthermore, a breach of an oral contract occurs when:
- there is a valid contract,
- a plaintiff performs its obligation,
- the defendant breaches his obligation and
- the plaintiff sustains damages from the breach.
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Verbal promises / agreements can have disastrous consequences
An example is seen in a case decided by the Houston Court of Appeals in 2012. In that case, the trial court awarded an employee $42,500.00 in damages for breach of an oral contract promising her an end-of-year bonus. The court of appeals affirmed the trial court’s ruling.
That court stated that there was sufficient evidence of an oral contract when the vice-president of operations for a family-run business told an employee that she would receive a bonus for work performed during the previous calendar year.
The employer argued that it told the employee she “might” receive a bonus. However, the court found that a reasonable jury could find that an oral contract was formed, and thus legally binding, from the evidence presented at trial. The result: The employer was on the hook for $42,500.00 due to the employee.
From oil giants to small business owners, Texas courts have no problem enforcing oral promises if they meet the requirements of a valid contract. The above case is a cautionary tale to employers, as well as employees in certain circumstances, to choose their words wisely when making oral promises.
The enforcement of a verbal contract ultimately turns on the communications between the parties and to the acts and circumstances surrounding those communications.