Legally binding agreements can take many forms, some of which may surprise you: emails, messages and even conversations can all count. A recent case has shown that a verbal agreement could be enforced in court.
The building blocks of a legally binding agreement
For an agreement to be legally binding, it must contain 4 elements: offer, acceptance, consideration, and an intention to be bound by the agreement.
Offer means that one party offers to do something for, or give something to, the other. Acceptance means that the other party accepts the offer unconditionally.
It doesn't matter how big or small the offer is or how difficult or easy it is to do.
Consideration refers to something of value that is gained through the agreement.
Each side must promise to give or do something of value (or not to do something) in return for what the other promises to give or do (or not do).
What each party promises to do or give doesn't have to be of equal value, as long as the offer is accepted unconditionally.
Once the first 3 elements are present, the only remaining – and crucial – requirement is that both parties intend to be bound by the terms of the agreement. In other words, each party intends the other to hold them to the agreement and to be able to legally force them to stick to it.
The medium of a legally binding agreement
To be legally binding, an agreement doesn't need to be signed or in any particular format – as long as all 4 elements are present.
In fact, it doesn't even need to be in writing (besides a few exceptions).
However, it's much easier to confirm that an agreement is legally binding if there is something in writing (e.g. an email, written statement, letter etc.) to confirm exactly what terms were agreed.
When an agreement is verbal and its terms are disputed, the terms may be so uncertain that the agreement becomes too vague to be enforceable. Other evidence can be used to determine what terms were agreed and helps avoid this situation.
A case in point
A recent High Court decision confirmed that even a phone conversation can result in a legally binding agreement.
A property developer had an agreement with a construction company to build student accommodation.
The project didn't go to plan. Both sides blamed each other for delays and felt they could make a legal claim.
The directors of the 2 companies discussed the dispute by telephone.
The construction company claimed that the conversation resulted in a legally binding agreement between the 2 companies not to pursue their respective claims.
The property developer, however, denied this and proceeded with their claim.
The High Court
The court had to decide whose perspective was a true reflection of the conversation. They could only do this using witness accounts of the immediate actions of each party after the conversation; documents; internal correspondence; and the follow-up exchanges between the parties.
The court found the construction company's evidence of the conversation to be more credible as they'd communicated what they believed to be the agreement to colleagues immediately afterwards. Based on the evidence, the court felt that the telephone conversation had included an offer, acceptance, consideration and an intention to create legal relations.
As a result, the property developer wasn't allowed to proceed with their claim.
What this means for you
Don't assume that the lack of a traditional written contract means there's no agreement.
Legally binding agreements are created every day in many ways and often without much thought, e.g. in person, over the phone, by email etc.
If the 4 elements are present, you may be entering into a legally binding agreement whether you're aware of it or not.
This case also demonstrates that when you knowingly enter into a verbal agreement, it's important to have other (especially written) evidence to prove exactly what the terms of the agreement were and that it's legally binding. We have a range of documents available to help you do just that.
This way, if the other party breaks the terms of the agreement, you'll be in a better position to act.