The answer, in short, is no. Although a verbal agreement is legally binding in the eyes of the law, its legitimacy can be called into question. In a case that relies on the evidence of a verbal contract, the appointed judge is asked to decide which version of events he prefers when handing out a verdict. This isn’t ideal, as cases should be judged on facts rather than opinion.
It is for this reason that verbal contracts are difficult to enforce, something demonstrated during the recent Mike Ashley High Court battle. The Sports Direct owner had been accused of reneging on a promise to pay a multimillion-pound sum to Jeffrey Blue, an investment banker tasked with increasing the company’s share value.
Accounts in court recounted ‘drink-fuelled’ meetings and ‘vomiting in fireplaces’ as the alleged deal was brokered. Mr Blue was one of four finance experts who met with Mr Ashley for these drinking sessions. He claimed that Mr Ashley offered to pay him £15million to increase Sports Direct’s share price to £8, something that the Newcastle United owner dismissed as a drunken joke.
Such is the ambiguity surrounding verbal contracts that Mr Blue took Mr Ashley at his word. Although he had already been paid £1m for activities unrelated to this deal, the financial expert was keen to chase Mr Ashley for additional payment once the share price exceeded the ‘agreed’ amount. He failed.
The judge’s words were particularly interesting in this case, with Justice Leggatt quoted as saying that:
“No reasonable person present… would have thought that the offer to pay Mr Blue £15m was serious and was intended to create a contract. They all thought it was a joke. The fact that Mr Blue has since convinced himself that the offer was a serious one, and that a legally binding agreement was made, shows only that the human capacity for wishful thinking knows few bounds.”
A damning verdict for Mr Blue and his legal team, who felt that the verbal contract was legitimate grounds to pursue. To add insult to injury, he has also been asked to pay Mr Ashley’s legal bill of £1.5m.
The simple way to have avoided the case reaching court would have been to draft an agreement in writing. If verbal agreements can be vague, then written contracts, if drafted correctly, give little room for interpretation.
At Marsans, we draft legally binding contracts for businesses looking to prevent ambiguity and clearly define the terms of an agreement. Companies of all sizes take a huge risk by agreeing terms on nothing more than a firm handshake. The verbal contract may be legitimate but it is fiendishly difficult to defend. Save the time and money wasted going to court by drafting clear, well-defined written contracts.