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. You enter into a contract with the supermarket to exchange your money for the bread when you reach 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. Otherwise, you may be liable for theft.

Written, Oral or ‘By Conduct’ Contracts

Aside from the exceptions outlined below, most contracts can be formed using one or more of the following methods.

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 created when one party does something that demonstrates 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 (for example, 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 broken a contractual term.

Where the dispute relates to a written agreement, it is often straightforward to hold the defaulting party to account. By identifying the relevant term that has been breached 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 agreement, there may be little or no evidence of the terms that were agreed. This means the defaulting party could simply deny the existence of a particular term, leaving the non defaulting party with the burden of proving that it existed.

Matters over oral contracts are more likely to end up in Court before a Judge. The Court will need to be persuaded, on the balance of probabilities, that the disputed term formed part of the agreement and that it was subsequently breached. To persuade a Judge, the non defaulting party will need to provide as much supporting evidence as possible.

This could include emails, text messages or witness statements from anyone who was present during the conversation that led to the agreement.

However, it is ultimately more difficult to hold a defaulting party to account without a written contract. It is therefore advisable to write down, sign and date any agreements intended to be legally binding, as this provides the best protection should a dispute arise in the future.

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.

To speak to our Dispute Resolution team, call 01225 755621 or email enquiries@fsmsolicitors.co.uk.