Commercial law expert comments on Sports Direct 'verbal agreement' case
Sheilah Mackie, a Partner specialising in commercial law at law firm Blake Morgan, explains the general rules about what comprises a binding verbal agreement in business.
“There is no specific rule that renders unwritten or verbal agreements non-binding under English law other than in certain specific circumstances e.g. purchasing a property, provided the key requirements of a contract are met. For any contract to be binding under English law there are four basic requirements; offer and acceptance, consideration, intention to create a legal relationship and certainty of terms. One party must offer to do something for or give something to the other. The other party must then accept the offer. There also must be consideration e.g. mutual promises or obligations between the parties or the payment of money. This is what differentiates a contract from a gift. The parties must also intend for the contract to be legally binding and, finally, there must be sufficient certainty as to what the terms agreed actually by the parties were.”
Advising businesses on best practice Sheilah added:
“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 appears to have been the case here.
“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. That way should you find out much quicker if the other party actually intended to enter into a contact or was joking.
“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.”