Oral contracts, where the parties do not sign a formal document, can exist. As with any contract, this is when the following four basic elements of a contract exist:
- an offer;
- acceptance of that offer;
- consideration – ie something provided by each party to the other; and
- an intention between the parties to create legal relations.
In this case, an oral contract was agreed for a fixed two year term, and this was not disputed. However, the parties ended up in court as they disagreed on whether it had been agreed that the contract could be terminated on three months’ notice. The County Court initially ruled that the three month notice period for termination had been agreed, but the decision was appealed to the Court of Appeal.
The Court of Appeal upheld the ruling and dismissed the appeal. On the evidence that had been provided, the Court of Appeal agreed that the County Court was entitled to conclude that a three month termination provision was part of the oral contract.
Simon Weinberg, solicitor at Matthew Arnold & Baldwin LLP and assistant editor of Upload-IT, commented, “This is not a ground-breaking ruling in itself. However, it is a useful reminder, if a reminder is needed, that relying on oral contracts is risky. Conversations can be interpreted in a number of ways – they rarely lead to any certainty and only increase the risk of relying on them in order to enter legal relations. Written agreements are safer, and the parties to proceedings such as these will, in hindsight, have preferred to spend money on the certainty of a written agreement in the first place rather than spend much more time and money on having a court decide what they had actually agreed.”