To create a legally binding contract there must be in place the following four key elements:
- An offer to enter into a contract from one party to the other;
- Acceptance of the offer;
- Intention of the parties to create legal relations; and
- Consideration – being something (often money) in exchange for what is being offered.
With the exception of contracts for land in English Law, there is no requirement for a contract to be in writing, and a verbal contract is just as valid as a written one.
Verbal contracts, however, have many short comings. Principally, if a contract is verbal only and there is a dispute over the terms, unravelling what has been agreed is often very time consuming and evidence can be difficult to produce. If the matter goes to court it is likely that emails and other correspondence will be examined to try and work out what the terms of the verbal agreement actually were. In the worst case scenario the matter can come down to a simple case of one party’s word against the other.
It is common sense to have a written contract wherever possible. This will reduce ambiguity over the terms agreed and each parties respective rights and responsibilities, and will make solving disagreements or disputes much simpler and cheaper.
It is worth noting that a poorly drafted contract can often cause as many if not more problems as a verbal contract. Contracts that are overly short, fail to record the terms agreed, and clauses that are badly drafted are often open to a different interpretation from either party, and if there is a dispute this can result in expensive legal fees in much the same way as a verbal contract can.
When entering into a substantial and important business agreement, you are well advised to consider preparing a well drafted written contract.