Clients will often presume that verbal agreements are not binding. However, as a general rule, the law considers that verbal agreements are legally binding. Whilst there are some exceptions to this (such as Settlement Agreements between employers and employees or agreements for the sale and purchase of land), verbal agreements can be enforceable.
Sometimes a verbal agreement is reached and the parties intend to record the terms in a document later on, but for whatever reason, this has not happened. However, the verbal agreement reached is still binding.
For a contract (whether verbal or written) to be legally binding, there are 4 elements that need to be present:
1. There needs to be an offer;
2. An acceptance of that offer;
4. An intention to create legal relations
The classic difficulty with a verbal agreement is if one party to the agreement seeks to renege on the agreement reached and denies that any such conversation took place.
The beauty of a written agreement is that usually the terms are expressly set out in one document that has been signed by all the parties to the agreement. If any disputes arise, then you can consider what the agreement says.
Disputes involving verbal agreements can get messy and they can be difficult (although not impossible!) to prove. You will need evidence to demonstrate that a binding agreement has been reached.
If you are a party to a verbal agreement, your recollection of the terms of the agreement will be absolutely vital. If you made any contemporaneous notes or there are emails or text messages referring to the agreement reached, these may also be helpful. Also, if an independent witness was present at the time the agreement was made, then their witness evidence will also be very important.
If you issue proceedings at Court based upon a verbal agreement, then a Judge will consider the evidence presented including witness accounts and any relevant documents. Unfortunately, Judges do not have magic powers to be able to determine for definite, who is telling the truth. If you are seeking to establish that a verbal agreement was reached, then your witness evidence will be crucial and a Judge will want to know what was agreed, when and why. Judges will also adopt a common sense approach and consider whether what you are saying sounds credible.
If you reach a verbal agreement, then it is sensible to record the terms of the agreement reached in writing, so as to try and avoid any problems further down the line. For further advice please contact Farleys’ Commercial Litigation department or our Commercial Contract team on 0845 287 0939, or complete an enquiry form