Summary
- Oral agreements can be legally binding in the UK if they meet five key elements: offer, acceptance, intention to create legal relations, consideration, and capacity.
- Without written records, proving the terms of an oral agreement in court can be difficult and costly.
- Certain contracts, such as those involving property or shares, must be in writing to be legally valid.
- This article is a plain-English guide to oral agreements for business owners operating in the UK.
- It has been produced by LegalVision, a commercial law firm that specialises in advising clients on contract law and business agreements.
Tips for Businesses
Document all agreements in writing, even informally. Mark communications “subject to contract” during negotiations. Keep records of emails, messages, and notes. If a verbal agreement exists, confirm terms in writing promptly. For property or share transactions, always use a formal written deed.
An oral agreement can be legally binding even without a single word in writing. However, enforceability depends on whether the agreement meets the five core elements of a valid contract. This article will explain some key features of oral agreements.
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:
- a valid offer (not an invitation to treat): an offer is a proposal from one party to enter into an agreement on specific terms;
- valid acceptance: acceptance is a reciprocal communication from the other party that agrees to the terms made within the offer;
- 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;
- 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
- capacity: the parties must have the mental capacity to create an agreement.
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form, and we will contact you within one business day.
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.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
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.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Yes, oral agreements can be legally binding in the UK if they fulfill key contract elements: a valid offer and acceptance, intention to create legal relations, consideration, and capacity. However, proving the terms of an oral agreement can be challenging without written evidence.
While verbal contracts are legally binding, they pose risks due to the lack of clear, documented terms. This can lead to misunderstandings and disputes, making enforcement difficult and potentially costly. Documenting significant agreements in writing is advisable to ensure clarity and ease of enforcement.
You can use emails, text messages, notes, letters, invoices, and bank statements. Witness statements from anyone present during the agreement can also help establish that a valid contract exists.
Marking communications ‘subject to contract’ signals that you are still negotiating and that no binding agreement exists yet. This protects you until both parties finalise and sign a formal written contract.
We appreciate your feedback! Request your free consultation now.
