How to unravel interpretation issues and misunderstandings
For a variety of reasons, your business might have entered into a verbal agreement with another party. This could be because you had to agree a supplier or customer contract very quickly and have run out of time to formally document matters or because a formal document is never signed by the parties. It might also arise when an existing contract is being varied to address an issue that has arisen.
If a dispute arises where there is no formal written agreement the lack of a written contract can cause misunderstandings and disagreement as to the terms which were agreed by the parties. Whilst it is more difficult to untangle disagreements where the contract is verbal, all is not lost. However, it will usually require some careful contract interpretation by a professional who understands the law in this area , in order to ensure that any dispute can be resolved and the parties can move on. Our dispute resolution Partner, Rebecca Beynon-Phillips looks at what is required in order to resolve a dispute which arises under a verbal agreement.
Are verbal agreements legally binding in the UK?
Yes, verbal contracts are legally binding in the UK.
What constitutes a valid verbal agreement?
A verbal contract has the same requirements as a written contract in that there must be an offer made by one party, acceptance of that offer by the other party, and some consideration must be provided under the contract. Both parties must also have the intention to be bound by the verbal contract.
What are the pitfalls of a verbal agreement?
While a verbal contract is legal in the UK, it is inevitably harder to provide evidence of the terms of that contract than if it were a written one with express terms (although they are often disputed too!).
In addition, it is likely that if you have entered into a verbal contract, you may not have considered and agreed upon all of the terms that you might need to have agreed on, making it harder to determine key issues later.
For example, you might agree a verbal contract to supply a your product to a business. You may have agreed the quantity of the product and the price verbally. However, you should also agree issues such as warranties, liability if you cannot deliver on time or provide the expected amount, or if payment is not made when expected, provisions for how to terminate a contract, and how to resolve disputes without court intervention.
These issues can be difficult to resolve when something goes wrong if there is no written record, or if they have not even been considered by the parties.
What action can you take if you have a dispute following a verbal agreement?
If you have a dispute following a verbal contractual agreement, you will have several remedies open to you to resolve that contractual dispute.
The first step is to try to resolve the issues by negotiation. This may have the advantage of saving the business relationship and allowing you to continue to work together. It may also be a good time to put a negotiated agreement in writing, to avoid any future misunderstandings. If negotiation is not successful, then there are other options available before you might have to go to court such as ‘alternative dispute resolution’ (ADR). ADR includes arbitration and mediation, which involve an independent party either adjudicating on the dispute (arbitration), or working with you both to try to reach agreement (mediation).
If ADR does not work, you can issue a claim in court for breach of contract, including a claim for any damages that might have arisen. A judge will review the available evidence, and decide how best to fairly resolve the dispute.
What evidence will help prove or refute a verbal agreement
If an independent third party, be it an adjudicator, mediator or judge, has to decide how to resolve your dispute, they will want to hear the parties’ recollections of how the agreement was made and see any documentary or additional evidence which assists.. A verbal agreement is far harder to evidence than a written agreement, but not impossible.
You may have contemporaneous evidence from the time that the verbal agreement was agreed. For example:
- emails or letters during your negotiations or detailing what was agreed;
- witness statements from the contracting parties with their recollection of what was agreed;
- any other witnesses to the agreement at the time such as employees;
the parties’ course of conduct since the agreement. For example, if you regularly supplied 200 items a month on the 5th of each month and were paid a certain sum per item, at roughly the same time, this will help to show what was expected by both parties in a dispute over price, quantity or payment terms
How we can help
A verbal contract may give rise to more grounds for dispute than a clear written contract containing express terms. However, it is still possible to resolve a dispute over a verbal contract with the right assistance.
If your business is in dispute over a verbal contract, it is important that you consult an expert to ensure that you capture all of the evidence that you need, and proceed in the best way possible to resolve the issue, based on all the circumstances. Our solicitors have many years of experience in this area. For further information and assistance, please contact Rebecca Beynon-Phillips in the dispute resolution team on 01733 882800 or email [email protected].
Rebecca Beynon-Phillips, Partner
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