Summary: Oral contracts are binding between parties in the same way as written contracts, except in relation to certain types of transactions such as the sale of land. However because oral contracts are not translated into a single written document, difficulties often arise in identifying what are the exact terms of the agreement. For that reason, lawyers will always advise that contracts should be put into writing. Where they are not, the Courts are often left to resolve disputes between the parties.
The case of BVM Management Limited -v- Roger Yeomans was one such case. The parties had discussed terms for the provision of services by BVM verbally and BVM had indicated a requirement for a minimum of 2 year period for the contract. Various draft documents had passed between the parties, and these drafts contained a clause entitling Yeomans to terminate the contract on 3 months’ notice. Subsequently BVM began providing its services without concluding an agreed written contract, on the basis of the negotiations that had taken place. Yeomans later sought to terminate the contract relying on the 3 month termination provision. BVM refused to accept that the termination provision formed part of the contract.
The Court of Appeal’s decision was that the break provision had been incorporated, by reason of its inclusion in the drafts passing between the parties and BVM’s failure to object to it during the discussions on the drafts. The case highlights the dangers implicit in oral contracts and emphasises the need for parties to be clear in their objection to objectionable contract terms during negotiations, in order to avoid the incorporation of such terms subsequently.
Relevant to: Parties negotiating commercial contracts, businesses