Shut your mouth! When can a conversation become an enforceable contract?
Contracts or agreements are everywhere and are part of the day-to-day way of doing business, whether to sell a product, a service or even run a charity.
In May 2015, the Supreme Court of NSW handed down a decision reminding us all that a verbal agreement can be enforceable. In this decision, the facts involved a group of companies held by various family members. A dispute arose about some of the companies' debts and whether other companies in that group would help pay off some of the debt. In coming to an agreement, two parties agreed verbally on a bail-out deal. When one of those parties tried to enforce the agreement, sadly both the other party and his solicitor had died, so there was uncertainty as to what was actually said and what the parties actually intended and this made it hard to gather evidence.
The decision contained a number of important reminders for anyone who is involved in negotiations:
This decision is an important reminder to all businesses: be careful about what you say in negotiations and put your agreements in writing! Also be careful about what you and your employees say, as it is possible that a verbal promise can be considered to be a variation to an existing written contract.
The best way to protect yourself against having an unclear contract or agreement that is hard to prove and enforce is to get your agreement in writing, and, when negotiating, be clear that the negotiation is simply that.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
