This is an issue that frequently arises in practice. Firstly, there is no requirement at common law for a contract to be writing and such verbal contracts happen of course all the time as part of everyday life. There are exceptions to this rule that have been imposed by statute. For example, the sale of land must be evidenced by a memorandum in writing. Secondly, it is important to understand that a contract (whether oral or written) only exists where the fundamental legal elements that make up a valid contract at Irish law exist.
Those elements are as follows:
- Offer
- Acceptance
- Agreement
- Consideration
- An intention to create legal relations
The questions most likely to be played out in a court where a party is seeking to enforce an oral contract would go something like this:
- Did Party A make an offer to Party B?
- Was the offer accepted by Party B?
- Did the offer and acceptance constitute an “agreement” between Party A and Party B? Agreement occurs once the offer was very clear and unequivocal and the acceptance was without qualification.
- Did consideration pass between the parties (something of value)?
- Was there an intention to create legal relations? In a commercial setting, this requirement is easily met as it generally assumed that such an intention exists between commercial parties.
So why put things in writing?
The obvious disadvantage of not having a written executed contract comes down to the enforcement of the terms where there is disagreement around the existence of the contract or perhaps the actual terms of the contract. In practice, this will be dealt with through the swearing of affidavits of those that were present at the time in question and perhaps through oral testimony and cross-examination in court.
Another relevant factor when discussing the enforceability of oral contracts is whether the arrangement (the contract) has been performed for a period of time without dispute or objection from either party. This supports the position that a verbal contract exists.
Other Issues
Authority – A question that could be relevant is whether both parties to the oral contact possessed the requisite authority to enter the verbal contract in the first place. This issue is particualry relevant in the context of employees and agents.
Entire Agreement Clauses – Where the parties have previously agreed terms in writing, for example in a supply agreement or a master software agreement, such agreements generally contain an “entire agreement clause”. In essence, such clauses provide that the agreement represents the “the entire agreement” between parties and any amendments thereto should be in writing. Therefore, the effect of an entire agreement clause is to exclude terms agreed verbally from impacting the terms of the contract in question. In fact, in sales-driven businesses its common to also exclude any past representations (both verbal and written) from the scope of the contract in question.
“Subject to Contract / Contract Denied” – whenever you are agreeing on terms over email or perhaps in person and you wish to exclude the possibility of a contract being formed (whether as a result of a meeting or perhaps through a series of emails) always mark the emails/ letters/ notes as “subject to contract /contract denied” or declare at the beginning of a meeting that the conversations are subject to contract. This will ensure that a contract does not come into existence until all terms have been agreed.
If you would like to discuss any of the issues raised in the above article, please contact dcunningham@cunninghamsolicitors.ie
The content of this article is provided for information purposes only and does not constitute legal or other advice.