Pillsbury Winthrop Shaw Pittman

English contract law and oral contracts — your word may still be your bond

By Raymond L Sweigart

Whether it was US movie mogul Samuel Goldwyn or the Australian/Irish politician Bryan O’Loghlen who first said ‘a verbal contract isn’t worth the paper it’s written on’, with all due respect, they did not have this quite right and recent case law confirms they actually had it quite wrong, at least under English law. A contract forms once the parties have, to all outward appearances, agreed the same terms on the same subject matter, normally through offer and acceptance (Air Studios (Lyndhurst) Ltd T/A Entertainment Group v Lombard North Central plc [2012]). However, many who negotiate commercial contracts often assume that there is a further requirement of formality and they are not bound unless and until the agreement is reduced to writing and signed by the parties. This is not true; oral contracts most certainly exist and they are certainly enforceable with a few exceptions, and have been for a very great number of years.

The courts in England are not at all reluctant to find that binding contracts have been made despite the lack of a final writing and signature. Indeed, even in the narrow area where written and signed contracts are required (for example pursuant to the Statute of Frauds requirement that contracts for the sale of land must be in writing), the courts can find the requisite writing and signature in an exchange of emails.

Whether words and conduct were intended to create legal relations has to be judged objectively. Lord Clarke in RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH [2010] stated that: ‘Even if certain terms of economic or other significance have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.’ …

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