Is a verbal contract binding?

The idea of a verbal contract is one that causes plenty of debate, even in the higher legal echelons. Doyen of the daytime TV legal world Judge Judy is fond of telling her millions of viewers that a contract requires just three things, intention, offer and acceptance. With these in place, the contract is formed, and it doesn’t have to be written down. On the other side of the coin, lawyers throughout the land are fond of misquoting Samuel Goldwyn and saying a verbal contract is not worth the paper it’s not written on.

So who is right? Can you rely on a verbal contract? And if so, why do you need a written one?

Enforceability

First, the positive news for those in the Judge Judy camp. According to English contract law, a verbal contract is as legally binding as a written one. There are some exceptions, however. An employment agreement, anything concerning land transactions or a guarantee are three examples of contracts that need to be set forth in writing.

But in a general commercial transaction, a verbal contract is still a contract. Let’s take a simple example. If you have agreed to cut your neighbour’s grass twice a month and he has agreed to pay you £25, then there you have all the aspects for a contract. If three weeks go by and you have failed to cut the grass, you are in breach. And if the neighbour doesn’t pay you, or he only pays you £20, then he is in breach. Or is he?

Clarity

The problem with a verbal contract is that in the case of a dispute, it can be a case of “he said, she said.” Let’s look again at the above example. You might both agree that the terms of the contract were “cut the grass twice a month for £25.” But perhaps you will argue that leaving it for three weeks is no problem, as long as it is cut twice in the calendar month. Alternatively, the neighbour might say you left an area to the side of the house uncut, which is why he only paid you £20.

Who is right? With a written contract in place, aspects like these would be ironed out and clarified up front. Any assumptions that either party would be making, whether “twice a month” means every two weeks or, indeed, whether the month in question is a four week period or a calendar month would become evident, and any misunderstandings ironed out.

Get it in writing

Of course, nobody is actually suggesting that a “grass cutting contract” is a necessity between neighbours, but when something as mundane can lead to so much ambiguity, it becomes evident that diving into a more complex commercial transaction without a written contract in place is a recipe for disaster.

The main purpose of a contract is to achieve clarity between parties to reduce the likelihood of a future dispute. There is no better way of doing that than to get everything in writing. After all, Judge Judy might make for good TV entertainment, but none of us want to face her for real.