Maybe you want to get out of a contract with a supplier – eg new business coach not as awesome as their shiny website promised – or maybe you want there to be a contract in place with a client when there wasn’t anything in writing… maybe there wasn’t an actual agreement that was signed by both parties, but rather a chain of emails – would that suffice as a contract?
What’s the position with not having a written contract?
Some contracts need to be in writing with the parties actually signing the agreement:
- Contracts for the sale of property
- Assignment of intellectual property
- Exclusive license of intellectual property
- Guarantee of bank loan
But for other contracts such as your client agreement or terms of business (the contract that sets out the basis on which you’re happy to provide your products or services to your customers), in theory an oral agreement is just as enforceable as a written contract that has been signed by both parties (or indeed terms of business that have been properly incorporated eg by purchasers ticking a box to agree to the terms).
Even a chain of emails setting out the basis on which you’re willing to provide your goods or services can be a binding contract.
And yes, even an oral agreement reached over the phone or in person can be a legally binding contract. Even a course of conduct can create a contract.
The main problem with oral contracts, however, is the lack of evidence as to what has been agreed. Evidence gets particularly difficult over time when parties can no longer recall the exact details of what was actually agreed. If the matter was ever to go to court because of a dispute as to the agreed terms, in the absence of some kind of other evidence, eg meeting notes, follow up emails, course of trading etc, it would really come down to who the judge found more credible and believable. Hence a big risk to take a case to court when it would be so difficult to estimate the chances of success, with the likelihood of not just having to pay your own legal costs but also the legal costs of your opponent.
For a contract to exist, whether in writing or oral, the following four elements need to exist:
- Consideration – each party must make a promise or undertake an obligation that has an economic value
- Offer – one of the parties must make an offer that is clear as to its terms
- Acceptance – the other party must have communicated their acceptance of the offer
- Intention to create legal relations – the parties have to be wanting to form a legal contract, it can’t be a joke or such like.
There also needs to be certainty of legal terms. So if there is a chain of emails and it is not clear as to what was actually agreed, then in the absence of other evidence that made the legal terms clear, there won’t be a binding contract.
So of course the best thing to do is to have a clear contract in place so that both you and the other party know exactly where you stand. Not just that, but have a contract that properly protects your business – not one that you have cobbled together yourself as you will be sure to miss key legal protections such as force majeure clauses and effective limitation on liability clauses. And definitely not one that you have swiped from someone else – not only because it’s not likely to be right for your business but it could also get you sued, because lawyers like me track infringements of the documents we have drafted for our clients or templates we sell.
Of course the problem for most small business owners is that they don’t know where to turn for decent legal contracts that fully protect them without it costing a fortune. So they turn to their best friend google, not realising that the free or low cost templates their search produces aren’t regulated in any way – yes that’s right, any old Tom, Dick or Harry without any legal experience whatsoever can sell legal templates – and there are some shockers out there….!
If you need any help with contracts for your business, then take a look at my Small Business Legal Academy, the most affordable and trusted way to protect your business.
Copyright © Suzanne Dibble 2021-2022
Disclaimer: The information contained in this blog is provided for information purposes only. The contents of this blog are not intended to amount to advice and you should not rely on any of the contents of this blog. Professional advice should be obtained before taking or refraining from taking any action as a result of the above contents of this blog. We disclaim all liability and responsibility arising from any reliance placed on any of the contents of this blog.
