How Can My Business Enforce an Oral Agreement?

As a business owner, you will likely enter into many business negotiations. In doing so, you may sometimes enter into an oral agreement instead of a written contract. You can legally enforce oral agreements in the UK. However, parties can enforce them only if certain conditions are met. Indeed, having an enforceable contract is an essential aspect of doing business. In certain circumstances, parties can enforce an oral agreement. This article will explain some key features of oral agreements. However, we would always recommend putting any agreement in writing, even if it is not a formal agreement, to avoid disputes and misconceptions.

What is an Oral Agreement?

An oral agreement is one that parties make through spoken words, whereas a written agreement is one that parties record in writing. Intuitively, you may think a legally binding contract must be in written form. Most businesses indeed document their agreements in writing to ensure the exact contractual terms are clear and to serve as clear evidence of the agreement if a dispute arises in court. However, contracts do not always need to be in writing to be valid. An oral agreement can be enforceable if you meet the five key elements of creating a legally binding contract. 

How to Create a Valid Oral Agreement

An oral agreement will amount to a legally binding contract if it meets the five requirements of contract formation. The requirements are that there must be:

1. a valid offer (not an invitation to treat): an offer is a proposal from one party to enter into an agreement on specific terms;
2. valid acceptance: acceptance is a reciprocal communication from the other party that agrees to the terms made within the offer;
3. an intention to create legal relations: there needs to be a clear intention for the parties to enter into a binding agreement. In a business/commercial setting, it is often assumed that the parties intend to create legal relations;
4. consideration: the parties must exchange something of value. This is often money, in exchange for the goods and/or services, however it does not have to be; and
5. capacity: the parties must have the mental capacity to create an agreement. 

Potential Issues with Oral Agreements

Meeting the technical legal requirements is only one aspect of creating a verbal contract. The more pressing problems often occur after you enter into the contract. This is because, by their nature, oral contracts have limited to no records.

Common issues that may arise include:

• a lack of clarity on what was agreed;
•  confusion and ambiguity on the key commercial terms; and 
• if there is a breach of contract, you may lack the necessary documents and proof to support your claim.

Proving a Verbal Agreement in Court

Some common ways of proving a verbal agreement in court include presenting as much evidence relevant to the agreement as possible. For example, evidence may include:

• emails;
• text messages;
• evidence of action taken in response to an oral agreement;
• notes made at the time of the agreement; and
• letters.

Further, there might have been witnesses present when you entered the oral agreement. It would be valuable to ask them to provide a written statement to verify that you have a valid contract. Other pieces of evidence might include circumstantial evidence like invoices, bank statements or any other documents that indicate the fulfilment of the agreement.

What Should I Do If I Have a Verbal Contract?

If you have created a verbal contract with another party and are worried about its enforceability, creating a formal written contract may be a good idea.

Similarly, you can avoid some ambiguity if you are yet to finalise the contract by the following:

• your solicitor can create a heads of terms document that outlines the key contract terms to be included in the final agreement to avoid ambiguity, although it is usually not legally binding, except for clauses such as confidentiality;
• marking all of your written communications as ‘subject to contract’ to make it clear that you are operating within a valid contract; and
• keeping a record of any negotiations or discussions surrounding the commercial arrangement and its terms.

Finally, it is worth remembering that not all oral agreements are sufficient to make certain contracts legally enforceable. Certain types of agreements will need to be made in writing. For example, a contract for property (or land) or for shares requires a formal deed document, which you must make in writing. In these instances, a simple oral agreement, even if it fulfils all the characteristics of a valid oral agreement, will not be valid until the parties sign a written deed.

Supplier Contracts Checklist

Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.

Download Now

Key Takeaways

As a business entering into frequent contracts, ensuring your agreements are legally enforceable is critical. A legally binding agreement requires an offer, acceptance, intent for legal relations, and consideration to be legally valid. If you have 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. 

If you need assistance turning your oral agreements into legally binding written contracts, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions