Verbal Contracts UK Case Law: Understanding the Basics

Contracts form the basis of any business transaction. They are legally binding agreements between parties that are enforceable by law. In the UK, contracts can either be written or verbal. However, while written contracts are more common in business transactions, verbal contracts can also be binding, as long as the necessary elements of a contract are present.

In this article, we will be discussing verbal contracts in the UK and the relevant case law that applies to them.

What is a verbal contract?

A verbal contract is a legally binding agreement between two or more parties that is made orally, without any written documentation. In a verbal contract, the parties agree to the terms of the contract through spoken words, and the terms are enforceable by law.

While verbal contracts are less common in business transactions, they are still used in some cases. For example, in situations where the parties have a long-standing relationship, a verbal agreement may be used.

Elements of a verbal contract

To be legally binding, a verbal contract must have the following elements:

1. Offer: One party must make an offer to enter into a contract.

2. Acceptance: The other party must accept the offer.

3. Consideration: Something of value, such as money or goods, must be exchanged between the parties.

4. Intention to create legal relations: Both parties must intend for the agreement to be legally binding.

Case law

Several cases in the UK have dealt with verbal contracts and their enforceability. In general, the courts will look at the evidence to determine whether a verbal contract was entered into and what the terms of the contract were.

One notable case is the case of Blue v Ashley. In this case, Mike Ashley, the owner of Sports Direct, made a verbal agreement with Jeff Blue, a former investment banker, during a night of heavy drinking. Ashley promised to pay Blue £15 million if he could increase Sports Direct’s share price to £8 per share.

Although Ashley argued that the agreement was made in jest, the court held that a verbal contract had been formed and that Ashley was bound by its terms. The court ordered Ashley to pay Blue £15 million.

Another case is the case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd. In this case, two companies entered into a verbal agreement to vary the terms of their written contract. The written contract stated that any variation had to be in writing, but the parties agreed to vary it verbally.

The court held that the verbal agreement was binding, even though it went against the written contract. The court held that the parties had intended to vary the written contract and that the verbal agreement was valid.

Conclusion

Verbal contracts can be legally binding in the UK, as long as the necessary elements of a contract are present. Parties should be cautious when entering into verbal contracts, as they can be difficult to enforce if there is a dispute. However, as the case law has shown, verbal contracts can be enforceable and parties should not assume that they are not binding just because they are not in writing.