UK: Law - How good is an oral contract?

UK: Law - How good is an oral contract? - A dispute over a verbal deal is hard to remedy.

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Last Updated: 31 Aug 2010

A dispute over a verbal deal is hard to remedy.

'Let's shake on it', when used in a business context, can spell disaster for all involved: If one party intends a verbal deal to be legally binding and the other does not, a dispute is inevitable. It's a common misconception that, in the absence of a written agreement there is no contract. In fact, a contract requires only four elements: an offer, an acceptance, a consideration and an intention that this is legally binding - this could even be the handshake.

Ideally, the parties to a contract would simply fulfil their obligations to each other and the contract would be concluded. But disputes frequently arise as to the terms of a contract, making it necessary to establish these. If the contract is in writing this will mean producing the signed agreement and interpreting it. But the position is far less straightforward if the contract is wholly or partially oral.

There are a few ways to prove that an oral contract exists. The contents of an oral contract will normally be a matter of oral evidence submitted to the judge: it may help if there was more than one witness to what was said. If one party denies the existence of a contract it may be possible for the other to show that an act of part performance is evidence of the contract. The oral contract's existence may be accepted but its terms disputed. If so, the court may, in certain circumstances, imply a term to that contract, using, for example, previous dealings between the parties.

The court, however, has no discretion to create a new contract.

Proving an oral contract is likely to be time-consuming and fraught with uncertainty, so, even if you agree something orally, it is advisable to confirm it in writing - a simple letter will suffice. Should a dispute arise, that will at least prove what you considered the contract to be and put your opponent on the back foot.

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