Is a verbal contract a valid contract?
30th May 2018 by Rob Kelly
When parties make an oral agreement but fail to record it in writing it can be very difficult, or even impossible, for the court to ascertain whether a meeting of minds has occurred.
A recent case involving classic cars highlights the difficulty.
In Michael Tuke v JD Classics Ltd, the claimant, a wealthy businessman who had an interest in classic cars, brought a claim against a classic car dealer and restorer on the basis that the dealer was acting as his agent in the purchase, restoration and sale of high-value classic cars. He alleged that at a meeting in December 2009 the dealer had told him that classic cars are “better than banks” and that he “could double his money”. Mr Tuke alleged that during this meeting, the dealer agreed to source cars for Mr Tuke to purchase, undertake servicing, maintenance and restoration and then find potential buyers, all for a 10% commission on any profits.
Mr Tuke spent almost £40m on 19 classic vehicles over a period of about 4 years. However, he did not make the sort of profits that he thought the dealer had promised and in 2016 he requested the dealer to deliver to him all documents relating to the 19 cars which had been sold. The dealer declined to do so on the basis that no agency relationship existed. He argued that he had been working on his own account throughout and that the claimant had misunderstood the nature of the agreement.
These facts emerged at a preliminary hearing at which the dealer tried to strike out the claim but in rejecting the dealer’s application, leaving the way open for a full trial, the court found that the claimant had established at least a realistic prospect that his claim would prevail due to emails and other communications passing between the parties which were consistent with an agency agreement.
This case illustrates the importance of establishing what the relationship is, and confirming it in writing. Oral contracts can be just as enforceable as written contracts but without a written record of what has been agreed or, preferably, a formal and comprehensive written agreement, it may be very difficult or impossible to prove the claim to the necessary standard for a court.
If you would like further information please contact Rob Kelly.