Read This to Understand Why Oral Contracts are Such a Very Bad Idea
Oral commercial agreements have a nasty habit of fostering dispute, yet a surprising number of even the most experienced businesspeople still persist in entering into them. A case on point concerned a couple who orally engaged an estate agent to assist them in finding profitable property investments.
The couple, who were experienced property investors, agreed by word of mouth with the estate agent that he would hunt down undervalued properties for them to buy with a view to resale at a profit. It was common ground that the estate agent was to manage the properties until their resale and that, in return for his services, he would receive half of the net profits realised from the arrangement.
However, his and the couple’s understanding of the precise effect of the agreement was otherwise radically different. The absence of a written contract, drafted by a professional, was a primary source of a dispute that arose between them in respect of three properties purchased by the couple on the estate agent’s recommendation.
Ruling on the matter, the High Court rejected the estate agent’s arguments that the agreement amounted to a formal partnership between them and that he had a proprietary interest in the properties. They at all times belonged, legally and beneficially, to the couple alone. The estate agent’s right to receive payment crystallised only on one or more of the properties being sold and the couple retained control over the timing of any such sales.
The couple’s trust in the estate agent was misplaced in that, without accounting to them, he had retained large sums in rent paid in respect of the properties. That, the Court found, was a fundamental breach of contract that entitled the couple to terminate the agreement. The end result was that the estate agent was ordered to pay the couple more than £100,000. The couple having lawfully brought the agreement to an end, he was also no longer entitled to any share in resale profits.
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