But you said it was ok….. Can you make a verbal agreement?

Posted by Robert Carter, 28th July 2016
Kanye West and Taylor Swift hit the headlines recently after a recording of a telephone call between them was released to the public. Although we do not know the full details of the conversation, the fall-out from it suggests that they reached a verbal agreement of sorts or that consent was given for Kanye to make reference to Taylor in a song.

The situation brings into play a variety of legal issues, including potential privacy implications, intellectual property rights in the use of a name for commercial purposes, and claims of defamation. However, in this article we look at whether parties can enter into binding verbal agreements from the perspective of English law, and whether there are any restrictions on doing so.

The General Rule

Firstly, there is no specific rule that renders unwritten or verbal agreements non-binding under English law, provided the key requirements of a contract are met. In fact, people enter into binding unwritten agreements every day; the classic example being a contract for sale of goods between you and a shopkeeper, when you buy your newspaper in the morning. Although you may receive a receipt as proof of purchase, there is no written record of the terms of sale that were agreed.

For any contract to be binding under English law there are four basic requirements; offer, acceptance, consideration and intention to create a legal relationship.

One party must offer to do something for or give something to the other, in exchange for the other party giving or doing something back. The other party must then accept the offer and agree to do whatever was on their side of the deal. This sounds very formal but it can be as simple as putting your newspaper of choice on the counter and handing over the stated price to the shopkeeper – you are offering to buy the paper at that price and the shopkeeper accepts by putting the money into the till.

There also must be consideration i.e. mutual promises or obligations between the parties. This is what differentiates a contract from a gift. In the sale of goods example above, the shopkeeper is obliged to hand over the newspaper, and you are obliged to give them the money. If nothing changes hands between the parties and neither party does something to their detriment for the other, there can be no contract. To give another example, if a decorator offers to paint a gardener’s house, and in exchange the gardener offers to help landscape the decorator’s garden, there are mutual promises. If we contrast that to the situation where the decorator agrees to do the painting as a gift and asks for nothing in return, then the gardener cannot use contract law to force the decorator to do the work if he later refuses to do it.

The parties must also intend for the contract to be legally binding. If in the example above, the gardener and the decorator were close friends, the law presumes that there was no intention for their agreement to be binding as the relationship between them was a friendly one, rather than a professional one. This does not however prevent a party from rebutting the presumption by providing evidence to contrary (and it is often best to avoid doing work for friends altogether given the repercussions seen in the case of Burgess and another v Lejonvarn [2016] EWHC 40 (TCC).

Exceptions to the Rule

In some situations, English law provides that an agreement must be in a certain form, to ensure certainty between the parties and also to clarify the matter for third parties who are not directly involved with the agreement.

Some examples of contracts which must be in writing include those:

  • Which contain a guarantee agreement e.g. the contractual promise by a guarantor to pay in the event that a debtor defaults must be evidenced in writing
  • For the sale, transfer or lease of land
  • For the assignment of the benefit of a pre-existing contract

Further, sometimes a written contract alone is not sufficient as the law requires it to be executed as a deed to be legally binding. The most well-known of these include the transfer of land, the granting of a lease, the appointment of a trustee, and the granting of a power of attorney.

The Exception for Intellectual Property Rights

It is well known that some public figures such as Taylor Swift have made every effort to protect their brand and commercial prospects by taking advantage of intellectual property regimes around the world. Taylor Swift has a number of trade marks registered for her name in relation to a variety of types of goods and services.

In the UK, some transactions involving intellectual property rights (IPRs) are afforded extra protection through formality requirements. If a party wishes to legally assign or grant a licence to use copyright, design rights, patents or registered trade marks to another party, the law requires such assignment or licence to be in writing.

With this in mind, under English law a verbal agreement to allow the use of such IPRs cannot be said to be as certain as one that is in writing and meets the other legal requirements. Therefore, if the party who owns the IPRs were to bring an action for infringement, the defending party would need to provide evidence that it was given the owner’s consent to use them.

Best Practice in Business

Although it is not essential for business contracts to be in writing and large numbers of contracts are entered into verbally on a daily basis, the obvious disadvantage is that the terms may be misunderstood or misremembered, as seems to have been the case between Kanye and Taylor.  So make a note of what was agreed and with whom, in the interest of certainty for both parties and for evidential reasons, or follow up by sending a letter, email or fax requesting confirmation and acknowledgement of the terms agreed. Alternatively, enter into a formal written contract to clarify matters and minimise the risk of a dispute at a later date (particularly where the contract is of importance to your business or your reputation).

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