Verbal agreements – more binding than you might think

Categories: News

Patrick Tedstone, Head of Litigation at ORJ, looks at how a verbal agreement could be legally binding.

As commercial litigators we are often instructed to analyse contractual agreements to determine what has been agreed between two parties – and the legal obligations for those involved.

The agreement could be between two or more parties, who could be individuals, companies, partnerships or other legal entities.

Often we are called in when there is a question of whether one party has failed to fulfil their part of the contract.

In the vast majority of cases, these agreements are written and signed – but in fact a contract doesn’t have to be in black and white. Contrary to popular belief, a verbal agreement made face-to-face, over the phone or via video call can amount to a contractual agreement in the right circumstances.

The problem with a casual, no-contract approach to business is proving these verbal agreements if something goes wrong and the relationship breaks down.

For any legal contract to be binding, regardless of whether it is written or verbal, the following factors must be present:

• Offer – One party must make a clear and definite proposal to do something – or refrain from doing something – in exchange for money or services.
• Acceptance – The party receiving the offer can reply yes, no or suggest changes. If they say yes, that is considered acceptance and the contract is live.
• Consideration – Something of value must be exchanged, for example money, goods or services.
• Intention to create legal relations – There must be a deliberate intention from those involved to enter into a legally binding agreement.
• Capacity – Those agreeing must be of sound mind and appropriate age.
• Legality – The contents of the contract must be legal. If all these criteria have been met, then a legally binding contract may exist. 

There are cases when verbal agreements have been found to be legally binding, such as VB Football Assets v Blackpool Football Club (Properties).

VB Football Assets, owned by Valeri Belokon, held a 20% stake in the football club. There were three written agreements, as well as an oral agreement which would’ve given VB Football Assets a greater shareholding.

The verbal agreement was not recorded in any written agreement but the Court found that further points had been verbally agreed by the parties. The oral agreements were therefore effective and were upheld.

And it’s not just verbal agreements. Business people should also be aware that judges have found a simple thumbs up on a text message could be considered legally binding acceptance of an offer.

If agreements have been made verbally and there is no desire to write a formal contract, it is good practice to at least note the conversations held, and the date they took place.

But it is always best to safeguard your business interests by putting agreements into a binding written contract with the help of a solicitor. That way, all parties know where they stand and there is a fallback position if something does go wrong.

Speak to our team today for expert advice.