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Verbal contract defeated by later associated communications

We have commented previously on the uncertainty around verbal contracts. Beware of forming a legally binding contract where nothing is written down.

However, in Richards v Harvey The Chancery Division in January 2021 has dismissed the claimant’s claim for damages for breach of an oral contract purported to have taken place at a meeting held on 4 February 2014. Although the question wasn’t whether the parties had subjectively considered that they had made a contract, in evaluating what had been communicated by words or conduct, the court considered the parties’ own subjective understanding of events.

It found that in so doing and based on the surrounding correspondence, neither party had understood that the meeting had the effect of reaching a binding agreement. Words used, which on the face of things indicated an intention to create legal relations, might in fact not do so, where it could be found that there had been no such intention. That conclusion was sufficient to see the claimant’s claim fail.

The simple takeaway point is that oral dealings may not be interpreted in the way you presumed and so, when negotiating contracts subject to English law, unless and until a party is ready in all respects to enter into a binding agreement, all communications relating to negotiations and contractual terms should be consistently described/marked as, or stated to be, ‘subject to contract’.

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