Contracts: Agreements Not in Writing

September 11, 2018

A common misconception surrounding the law of contract is that there needs to be a written agreement or signature in order for there to be a valid contract. This is a myth that needs to be debunked. It is misleading and wholly incorrect in the legal arena. Whilst there are, of course, exceptions whereby contracts are required to be in writing, it would be unwise to accept this as a general principle applicable to every type of contract. One should exercise a level of caution in such situations.

The general rule is that contracts can be made informally.  Accordingly, acceptance and formation of a contract can be made orally through spoken words as per Thoresen Car Ferries Ltd v Weymouth Portland Borough Council [1977] 2 Lloyd's Rep. 614 (no transcript available). In some cases, no oral or written communication is needed; acceptance and formation of a contract can be present through conduct alone, as seen in Brogden v Metropolitan Railway (1877) 2 App Cas 666 (no transcript available). Due to this, an informal exchange of promises can still be as binding and legally valid as a written contract. It has been a part of English Law since 1877, when Brogden was heard.

 

It is conceded that oral agreements can be hard to enforce through the court system, as such agreements often have little or no evidence to support the existence of the agreement, aside from the testimony of the parties themselves. The Claimant must prove on the balance of probabilities (that it is more likely than not) that the agreement exists. Practically speaking, a case of that nature would be one party's word against another's. This may in turn, become pantomime-like with the central disagreement being the alleged existence or non-existence of the agreement. Unless there is a recording of a conversation or a transcript of that conversation, such a claim on this basis is unlikely to succeed.

 

There are exceptions to the general rule, which are as follows:

  1. Contracts which must be by deed;

  2. Contracts which must be in writing; and

  3. Contracts which must be evidenced in writing.

 

Contracts which must be by deed

 

  • An example of this is a lease for more than 3 years, as outlined by sections 52 and 54(2) of the Law of Property Act 1925. If these contracts are not made by way of deed, they are deemed null and void.

 

Contracts which must be in writing

 

  • A contract may be required to be in written form by provisions of various statutes. An example of this is the Consumer Credit Act 1974, as amended by the Consumer Credit Act 2006. The 1974 Act requires consumer credit agreements to follow a prescribed form. In circumstances where the 1974 Act is not complied with, the agreement can only be enforced by a court order.

 

  • A second example concerns all contracts for the sale or other disposition of an interest in land. In this instance, the contract must be written and signed by the parties. This is found in section 2 of the Law Reform (Miscellaneous Provisions) Act 1989. It must be noted that the following types of contracts are exempted from section 2 of the 1989 Act: contracts for the grant of short leases; contracts under the Financial Services Act 1986; and contracts made during the course of a public auction (Spiro v Glencrown Properties Ltd [1991] 1 All ER 600). Section 2 of the 1989 Act applies to contracts dated on or after 27th September 1989. If dated on or before 26th September 1989 (which is now highly unlikely) the previous regime under section 40 of the Law of Property Act 1925 applies.

 

Contracts which must be evidenced in writing

 

  • An example of this is a contract of guarantee, which essentially means that there must be some form of written note evidencing that the transaction itself is in existence before the contract can be enforced. This type of agreement must be signed by the party to be made liable by the contract. Section 4 of the Statute of Frauds 1677 provides the basis of requiring contracts of guarantee in written form.

 

The above examples and the previous case law regarding acceptance of a contract illustrate that the belief that all contracts must be in writing is ill-founded. The ability to create a contract orally or through conduct is an established concept of contract law, as one will note from the date of the cases and statutes containing them. One should exercise extreme caution during any negotiations or discussions, as it is completely possible to become legally bound by words or one's own conduct.

 

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