Verbal Contracts

When people think about contracts, they usually picture a written document with many paragraphs, full of technical jargon. But did you know that a verbal contract can be binding in the same way as a written one?

rradar solicitor Tim Hornby takes a look at what verbal contracts involve.

Verbal contracts are binding in the same way as written contracts, providing they meet the same basic criteria:

• offer,

• acceptance,

• consideration - that is money or money’s worth - and

• an intention to create a legally binding agreement.

In some instances - and particularly in certain industries such as farming or construction - contracts can be created verbally, without any specific details being agreed.

The same can be said for variations to written contracts - a simple example being the addition of a small amount of work on top of a larger job.

Many clients contact us with disputes over contracts and the most difficult of those to advise upon are often verbal contracts or those in which verbal amendments have been made. This difficulty comes down to the simplest point of being unable to determine the terms agreed between the parties – this obviously creates a problem when we are looking to advise on the contractual position and advise on which party is wrong. The question of who is in breach of the contract becomes far more difficult if the contract clauses or terms cannot be easily defined.

If the matter reaches court, the same difficulties are faced by judges who have no magic wand to look back and see what the parties agreed or intended to agree.

Instead, the onus is on the evidence that can be provided by the parties and often this is focussed on their witness evidence, with the Court forced to make a decision based on whose story they consider to be the most accurate and credible. Clearly, this creates real ambiguity in both the dispute and the end result, should it be litigated.

What should be done?

The simplest way to prevent the difficulties around verbal contracts is to get something in writing.

It might be as simple as following up a meeting with an email. Bullet point the items discussed and the terms agreed. Even if the other party does not confirm or deny the terms, this will be more supportive of your position if there is a later disagreement.

Record evidence of work done in respect of variations. Emails again, photographs or even text messages can be vital in proving what was agreed or what work was done.

Of course, not every agreement warrants a detailed contract nor the cost of solicitors for drafting it. In such circumstances, agreeing a simple Heads of Term document that sets out the essential terms such as the scope of work to be done, the price agreed, or the timescales of delivery would be very useful.

If for any reason, you have to verbally negotiate contract terms - or key terms are likely to be agreed in a face-to-face meeting - make sure you do so with a witness and/or a note taker. This should be someone who could, if necessary, provide witness evidence to help clarify what was agreed.

These may be simple points and most contracts will be concluded without issue, but by following these pointers, hopefully you can save yourself a huge amount of difficulty further down the line.

rradarstation

If, after reading this article, you feel you need to take another look at verbal contracts you have concluded (or are in the process of concluding), why not talk to our rradarstation advisors? rradarstation is a resource available through the AXA MLP where policyholders can access rradar’s legal advisory team over the phone or by email and web gateway that provides over 2,000 articles, step-by-step guidance sheets, forms, sample letters and templates to download relating to running your business/organisation.