Oral vs Written Contracts

What is a contract?

A contract is a legally binding agreement.

Whether you realise it or not, you enter into contracts on a daily basis, for example, buying a loaf of bread at the supermarket. In this example, you enter into a contract with the supermarket to hand over money in exchange for the bread when you get to the checkout. Although there has been no formally written contract prepared between you and the supermarket, you are still legally obliged to pay for the items if you choose to take them (or else you may be liable for theft!).

Written, Oral or ‘By Conduct’ Contracts

Aside from the ‘Exceptions’ below, most contracts can be formed using one or more of the types described below:

Written contracts are agreements that are documented in writing and usually signed by one or both parties.

Oral contracts are agreements made during verbal communication.

‘By conduct’ contracts are those which are entered into by one party doing something which ultimately creates a legal intention to enter into a contract, as in the shopping example above.

It is a common misconception that only written agreements are legally binding. This is not the case; oral and ‘by conduct’ contracts are equally as valid as their written counterparts.

Exceptions

Some contracts must be in writing for them to be legally recognised, including:

  • Sale of land;
  • Assignments (transferring rights from one party to another);
  • Equitable mortgages (a mortgage where the lender does not obtain a legal interest in the land);
  • Guarantees (e.g. of a bank loan);
  • Transfers of shares;
  • Transfers of intellectual property rights.

Breach of Contract

Contracting parties may fall out if one or more of them have breached the terms of the agreement. The defaulting party is the party that has a broken a contract term.

Where the dispute is over a written agreement, it is often straightforward to hold the defaulting party to account by pointing out the relevant term of the contract that they have broken and negotiating a satisfactory resolution for the non-defaulting party. A written contract provides the best ‘evidence’ of agreement and is useful if the matter ends up before a Judge.

Oral contracts are much riskier. When a dispute arises over an oral contract, there may be little or no ‘evidence’ as to the terms of the parties’ agreement. This means that the defaulting party could simply deny the existence of the term and it will be the non-defaulting party’s burden to prove its existence.

Matters over oral contracts are more likely to end up in Court before a Judge. A Judge will need to be persuaded that, on the balance on probabilities, the term was a term of the contract and that the defaulting party broke it. To persuade a Judge, the non-defaulting party will need to submit as much evidence as possible as to the term’s existence. Evidence could come about in many forms, such as emails, texts or witness statements, if anybody witnessed the conversation that led to the agreement. However, it is ultimately more difficult to hold the defaulting party to account in the absence of a written contract.

It is, therefore, advisable to write down, sign and date any agreements that are intended to be legally binding as it offers you the best form of protection if the terms are breached.

How can we help?

We are commonly instructed to assist clients who have entered into a contract with one or more parties who have subsequently breached a term of the contract. We can assist in negotiating settlement terms with the other party and / or bringing or defending legal proceedings if necessary.

Please give our Dispute Resolution team a call on 01225 755621 or email: enquiries@fsmsolicitors.co.uk

 

The contents of this article are for the purposes of general awareness only. They do not constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.

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