Is An Oral Agreement Enforceable in England?

Many agreements are verbal rather than written down. Just because there is no written evidence of the agreement does not make it unenforceable. An oral agreement will bind your business if it meets certain conditions. It is crucial to understand that while written contracts are more common and easier to prove, oral agreements are equally binding if they meet the essential elements of contract formation. Understanding these elements and knowing how to prove a verbal agreement can protect your business in case of disputes. This article will explain these conditions and provide some practical considerations if your business enters into a verbal agreement.

What is an Oral Agreement?

Intuitively, you may think that a legally binding contract must be in a written document with concrete terms that both parties have signed. Indeed, most business contracts today are made in writing precisely because both parties benefit from having a written record of the deal. If a dispute arises, you can point to the document in court as proof of its terms.

However, the rules on contract formation do not require an agreement to be made in writing at all. Instead, your business can have an enforceable oral agreement so long as you meet three essential conditions.  

Conditions for a Contract

A verbal agreement will amount to a legally binding contract if it meets the three requirements of contract formation:

• a valid offer and acceptance;
• the intention to create legal relations; and
• consideration. 

An offer is a promise from one party to another that contains the terms of the agreement. An acceptance is some form of communication that agrees to the terms made within the offer. It is worth keeping in mind that if you do not agree to all of the terms that the other person has proposed and you make a suggestion of a different agreement, this will amount to a counteroffer. 

In a business contract or a commercial setting, it is assumed that the parties intend to create legal relations. In contrast, the law is unlikely to recognise any agreement you make with your spouse about who does the laundry and who does the dishes as an intent to create legal relations. 

Finally, consideration is something of value that is exchanged between the parties. The value does not have to be fair market value. Therefore, an agreement to exchange your Aston Martin for £1 would satisfy the question of consideration. Consideration is often the promise to do something at a later date. For instance, your business’ promise to repair a client’s roof is a consideration. Both parties must offer consideration. 

If all three elements are present during a verbal exchange, you and your counterparty will have created a legally enforceable contract.

Proving an Oral Agreement 

An oral agreement comes into existence when the agreement meets all three conditions. Provided both parties honour their commitments to one another, there is no problem. However, if a dispute emerges over an oral agreement, the issue the aggrieved party faces is how to prove the contract exists in the first place. 

Without any record of the agreement, you have nothing to show to a judge to prove the other party is in breach of the contract. Instead, you merely have your word against your counterparty’s. 

That said, you may have evidence that suggests you and your counterparty made a verbal agreement. For instance, you may have emails or texts suggesting one or both parties are fulfilling their obligations. Alternatively, if your business has made a payment following a verbal agreement, a court is likely to infer a contract exists. However, the problem again is proving the contract’s specific terms. Witness statements are helpful here. 

Where an Oral Agreement Exists

If you have an oral agreement in place, you should try and make a record of it as soon as possible. Ideally, your solicitor will draft a document that lists all the terms of the verbal agreement, which the other party agrees to sign. In doing this, you or the other party may likely wish to amend certain terms. As a general rule of thumb, the terms contained in the written document will override any terms negotiated verbally. 

If you and the other party cannot agree to the written record of the agreement, you may nonetheless agree on how to resolve a dispute. Again, a solicitor can advise you on this. 

Finally, it is also worth keeping in mind that an oral agreement will not be sufficient to make certain contracts legally enforceable. Certain types of agreements will need to be made in writing. For example, you cannot agree to buy a piece of land over the phone. You must document the terms in a contract for the purchase to be binding. In turn, the land itself must be transferred through a deed, which is a special kind of contract. 

Key Takeaways

Businesses frequently enter into contracts, some of which may be written down and others verbal. Provided any agreement fulfils the three essential conditions to create a contract, it will be legally binding. These conditions are offer and acceptance, intention to create legal obligations and consideration. 

If your business has entered into an oral contract, it is often a good idea to set out the key terms of your agreement in a written document so that you have a document to rely on if you ever have to go to court. Both parties should sign the document where possible. 

If you need help with your business, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.

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