A Real Beating or a Written Agreement—An English Case Provides a Good Reminder that Oral Agreements Can be Binding

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There was a time when written agreements were the exception rather than the rule.  Today, however, most significant contractual arrangements are evidenced by a written agreement; and it is assumed by many that the absence of a written agreement means there is no contract between the putative parties at all.  But contrary to the popular saying that “a verbal agreement is not worth the paper it’s written on,” the law still allows many contractual arrangements to be formed without the requirement of a writing; and it remains the exception rather than the rule that a writing is required to create a legally binding contract.

Prior to the 1677 Act of the English Parliament, commonly known as the Statute of Frauds, there was, in fact, no requirement that any contract be evidenced by a written agreement.  Indeed, there was apparently a time when the primary means of memorializing the conveyance of land, for example, was by an elaborate ceremony involving the handing over of a clod of dirt followed by the beating of a young boy from the village with which the land was associated.  Apparently the beaten young man never forgot the deal that was thereby made, nor did the villagers forced to witness that beating.1  While that particular practice eventually changed even before the advent of the Statute of Frauds, the opportunities for false claims of a contract having been made orally eventually convinced the English Parliament that there were certain types of verbal agreements that simply should not be enforceable absent written evidence of that agreement.  The Statute of Frauds was thus designed to avoid frauds being perpetrated by virtue of alleged oral agreements respecting certain categories of agreements that were deemed prone to fraudulent claims—e.g., contracts for the sale of real estate, contracts whereby a person becomes obligated on the debt of another (i.e., guaranties), contracts that cannot be performed within one year, and contracts in consideration of marriage.

England apparently did away with most of the Statute of Frauds some time ago (except it seems with respect to guaranties), but virtually every U.S. state has adopted its own version of that original 1677 English statute, and many states have added to the list of contract types that must be in writing (e.g., contracts involving the payment of a commission on the sale of a business or real estate).  But whether you are in England with a very limited Statute of Frauds, or one the U.S. states with some expanded version of the original Statute of Frauds, an oral contract remains binding unless it specifically fits within the enumerated statutory categories that require a writing.

And so it was that a conversation at a London pub on the evening of 24 January 2013, between “five guys and a barman,” resulted in a claim that an oral contract had been made whereby Mike Ashley, the founder of Sports Direct, would pay Jeff Blue a bonus of £15 million if Mr. Blue could “get” Sports Direct’s stock to trade at £8 per share.  In a July 26, 2017 High Court ruling, the court determined that no contract had in fact been made as a result of statements made that night, but not because such a contract could not have been made orally, nor because more than a few pints may have been consumed by the participants in that conversation, but simply because the circumstances of the meeting, the “jocular” context in which the promise was made, and the lack of specific details (like how long the stock needed to remain at £8 per share) meant that the oral statements failed to meet the time-honored requirements necessary to form a legally binding contract.2  Had there been less jocularity that night, more details, and consistent testimony as to the terms supposedly agreed, this may have turned out differently.  And while this happened in England without its old 1677 statute, an agreement to pay a bonus to a consultant does not appear to fit neatly within any of the categories of agreements requiring a writing in the various versions of that old 1677 statute in effect in most U.S. states.  So, this could have just as easily happened in a bar in New York or Dallas.

And the next time you describe as a “beating” your negotiations over that lengthy written contract designed to capture the specific terms of the parties’ agreement, please be grateful that a real beating is no longer a required part of the memorialization of a contract.

Endnotes    (↵ returns to text)

  1. See Note, Statute of Frauds—New Requirements for Enforceable Purchase Agreements, 8 William Mitchell L. Rev. 991 (1982); Allegra di Bonaventura, Beating the Bounds: Property and Perambulation in Early New England, 19 Yale Journal of Law & the Humanities 115, 141 (2007).
  2. Blue v. Ashley, [2017] EWHC 1928 (Comm).