Before paper and ink, typewriters, word processors, laptops and computers, a person’s word was their bond and therefore unthinkable to break. In the modern world most business transactions do not take place without some form of written agreement and extensive terms of business for which the parties can rely on. Even in the smallest of transactions, for example when someone sells their car, it is not uncommon to see one of the parties scribbling down certain terms on a piece of paper and then asking the other to sign it.
In general terms,verbal contract are just as valid as written ones, the difficulty is when disputes arise and there is an argument over what the terms were. Often one party will argue the terms were in their favour with the other party disputing it because it is not in theirs. The advantage therefore follows, when making a written contract, that the terms are clear and unequivocal.
There are some agreements that cannot be made verbally, for example agreements involving property or guarantees which, by law, are required to be in writing if one is to rely on it. However, many other types of agreement can be made verbally and then enforced in the courts of England and Wales.
For most contracts to be valid it must have four elements:
- There must be an offer made (the offer element)
- The offer must be accepted (the acceptance element)
- There must be some form of consideration, usually money from one party and goods or services from the other (the consideration element)
- The parties must intend to create a legally binding agreement (the intention element)
In verbal contracts, when parties agree and begin to act in pursuant to the agreement, it can be demonstrated in their actions. For example, if one party agrees to make monthly instalments of £500 for renting a room; the parties bank statements will demonstrate the £500 being transacted (unless it is paid in cash). It is then difficult for one party to dispute what the consideration was, in this case money. If the other party was not providing a room, then why was a £500 sum being transacted between their bank accounts?
The problem with verbal contracts, and enforcing agreed terms, stems from more complicated terms such as what notice period should be given should one wish to vacate a property. One party may insist on four weeks’ notice where as the other, who wants to leave urgently, would like to just give one weeks’ notice. In some scenarios, notice was discussed at the onset but as time has gone by the parties have forgotten what was agreed, because they failed to get it written down. Many disputes over verbal agreements arise from this sort of scenario.
You might ask yourself, ‘how would a court decide on who was telling the truth?’ The courts would listen to oral evidence and then prefer one over the other, particularly in the absence of any independent evidence such as a written agreement. This is why enforcing oral agreements can be risky, primarily because they lack certainty in regard to the outcome.
If you make a verbal contract, then you need to record the terms of the agreement in writing, this will avoid problems and disputes in the future and give both parties certainty. There are other considerations that must be addressed when entering into a contract. For advice and drafting of written agreements, please contact us on the contact page or call (01273) 726951.