Is it Safe for My Business in England to Vary a Written Commercial Contract Orally?

Every business owner will likely sign dozens of commercial contracts during their lifetime. Most commercial contracts exist under the original written agreement until the contract ends. However, sometimes a contract will require a variation to enable it to continue. This article will explore whether it is safe for your company to vary a written contract orally and any risks involved with doing so.

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What is a Commercial Contract?

This is a legal document between two businesses summarising the binding terms of a commercial deal. Whilst all contracts differ, most commercial agreements confirm details regarding payment, exchange of goods and services and termination provisions.

Because of the high financial value of some commercial contracts, any breach of contract can have significant economic consequences for the defaulting party. Thus, an out-of-date contract can be risky to the parties involved, hence the occasional need to update and vary an existing written agreement. For example, you may need to vary a contract to:

• extend the agreement;
• vary the services provided; or
• vary the price.

What is the Most Common Way of Varying a Written Contract?

Before varying a contract, check to see if there is a mechanism for varying the contract within the original agreement. If there is, ensure you follow that procedure. 

Most businesses will vary a written contract in writing, and the most common legal document for doing so is known as a Variation Deed. This acts as an additional schedule confirming the updates to the original agreement. 

It is preferable to update a contract in writing rather than orally, as this gives the parties a clear explanation of the changes made. Whilst an oral variation is equally binding, it is much harder to evidence. 

Moreover, varying a contract in writing is more practical. By agreeing to variations in writing, both parties can clarify their positions and ensure they align. Consequently, this minimises the chances of disputes in the future. 

Why Do Some Businesses Orally Vary a Contract?

It is common for some businesses to build up a certain level of trust with each other. This is most common where two companies have a strong business relationship, and the owners know each other well. In this scenario, some organisations will trust others to follow any oral contract variation.

However, there are two main problems in relying on an oral agreement with another business:

• the owner and main decision-maker at that company may change. If this happens, the incoming decision-maker may decide only to follow the terms of the written contract; and
• the other business may face financial difficulties or fall out with your company and, if one of these occurs, decide to deny any oral variation took place.

Put simply, an oral variation relies on the goodwill of the other party because, absent their confirmation, there is usually no written evidence of the contract variation, and so it is difficult to prove or rely on.

How Can My Business Improve the Security of an Oral Contract Variation?

The main way to evidence an oral variation of terms is to confirm the content of the oral variation by a follow-up email between the parties.

However, oral variations are relatively uncommon because they involve nearly as much effort as committing them to paper through a Variation Deed (or a new contract).

How Can My Business Improve the Security of an Oral Contract Variation?

Potentially, yes. Let us consider an example  A business provides a professional magazine subscription delivery to a law firm’s office for £150 per month. Eight months ago, the parties agreed that the magazines would be delivered to two offices (rather than one) for £250 per month.

The law firm now denies that they orally changed the written contract (stating delivery to one office for £150 per month). However, for the last eight months, they have paid the updated £250 monthly sum and had magazines delivered (without protest from them) to two offices.  

This is likely to be a situation in which the parties’ conduct evidences an oral agreement. However, most situations are more complex than this. 

Are There Any Situations in Which Oral Contract Variations Are Not Possible?

Due to the lack of service inherent in an oral contract variation, some commercial contracts will expressly state that the parties cannot orally vary the agreement. Instead, the contract wording will declare that the parties must perform contract changes in writing. 

These types of commercial contract variation clauses are becoming more commonplace because of the risk of legal action between parties due to any of the following factors:

• the refusal of the parties to agree on the variation terms during the oral conversation;
• the increased risk of contract breach due to the parties’ uncertainty over the exact nature of the contract; and
• the fact that disagreements will likely lead to formal legal action to let a court decide whether the existing contract has been amended and, if so, what its current wording is.

Key Takeaways

Many businesses need help to demonstrate that a valid variation of the contract has taken place absent confirmation in writing. Because English law is evidence-driven, judges prefer reviewing written agreements rather than considering oral contractual term variations. Whilst your company can make oral modifications to a contract, it should be aware of the risks of doing so beforehand.

If you need advice on the variation of commercial contracts, our experienced contract 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 on 0808 196 8584 or visit our membership page. 

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