Oral contracts can be just as binding

In the contemporary business landscape, verbal contracts are often perceived as relics of the past, seemingly obsolete in an era dominated by written agreements signed by the involved parties. The notion of engaging in oral contracts evokes images of ancient business transactions, where an individual's word equated to their honour and was deemed unbreakable.

In today's modern age, very few substantial business dealings occur without some form of a written agreement, even if it is just a brief note hastily jotted down on a piece of paper. Many people doubt the weight of verbal agreements, considering them unenforceable in the practical business world.

While there is a prevailing belief that rights acquired without a written document are unenforceable, verbal contracts are, in fact, valid contracts, with some exceptions. Although the law may not favour oral contracts, they can be enforced by the court in various situations.

For real estate agents and negotiators, who often engage in verbal communication with both clients and sellers, many agreements are made verbally and not documented in writing. Therefore, it is advisable for property agents and negotiators to prioritise putting everything in writing, as it is the best way to protect their interests. 

The same can be said of the home buyers. Being on the receiving end of propaganda pushed onto them in the bid to get their John Hancock on the sales and purchase agreement (SPA), many of the promises are made verbally. And hungry agents and negotiators, especially those with who will promise a thousand heavens to seal the deal, are the ones to be wary of. 

This also puts property developers in a quandary as these individuals serve as representatives and what they promise can have legal implications. 

Key factors

Distinguishing between a verbal contract and a written contract, lawyers note that the ease with which a claimant can prove the terms of the contract is a key factor. Four essential elements are required to form a contract: An offer must be made, the offer must be accepted, there must be an intention to create a legal relationship and consideration must be given.

In the case of oral contracts, the same essential elements must be present, according to a lawyer. An offer, which is a commitment by one party to another, promising to enter into a contract on specific terms, must be specific, complete and capable of being accepted. The lawyer emphasised that acceptance of the offer must be unequivocal for a contract to be formed.

Consideration, defined as an item or service of value exchanged between the parties, is a crucial element for a contract to occur, as is the intention to create legal relations. The courts will apply an objective test to determine whether such intention exists. 

Importantly, these points do not necessarily need to be written down. In some cases, a verbal agreement is not even required, as the court may infer a contract based on the conduct of the parties.

However, the challenge with verbal contracts lies in the difficulty of proving the terms of the agreement in the event of a dispute. It becomes the responsibility of the court to deduce which party's account is accurate and requires some form of evidence to validate their case.

Parties to the agreement must provide the court with proof that a contract was intended and indeed made. This evidence can take various forms, such as text messages via email, phone recordings, receipts of payment or even hastily written notes on a napkin. If there is a witness to the agreement, there may be a need to obtain a written statement from the witness.

In essence, property agents or the buyers should gather as much evidence related to the transaction as possible. If all else fails, the court is likely to take an objective approach and consider the credibility of each party's claims.

Instances of success

For example, two cases where real estate agents emerged victorious despite having only oral agreements. These are real-life cases that have demonstrated success in cases where verbal agreements become legal contracts. 

In the case of Chew Teng Cheong & Anor vs Pang Choon Kong [1981], the judge ruled in favour of the agent. The court asserted that "where the agency contract provides that the agent earns his remuneration upon bringing about a certain transaction, he will be entitled to such remuneration if he is the effective, not necessarily the immediate cause of the transaction being brought about."

Moving on to another case of Inch Kenneth Kajang Rubber Public Limited Company vs Tor Peng Sie, Berniaga Sebagai Pacific Landmark Real Estate Agents [2010], the sale of 163.9ha out of 407.1ha at RM4.60 per square foot (psf), totaling RM81,279,719. The sale price was later adjusted and reduced to RM79,726,274 through a supplementary agreement.

The landowner's defence claimed that, before the signing of the Letter of Appointment, it was orally agreed that the agent's fees would only be payable if the sale price achieved was a minimum of RM5 psf and if the entire property was sold. The landowner argued that, as only a part of the estate was sold at the price of RM4.60 psf, the agent was not entitled to the claimed fees.

Without delving into excessive details, the court ruled in favour of the agent as the landowner failed to establish the exact subject property the agent was to sell, and the clause in the Letter of Appointment under Outright Sale referred to "one per centum (1%) of the total sale price for each individual transaction" rather than the entire property being sold.

Navigating legal pitfalls

To steer clear of legal pitfalls, real estate agents should prioritise transparency and eliminate any room for misinterpretation in their documentation, emphasising the avoidance of reliance on oral agreements.

For the home buyer, they should record items that sound inconsistent to brochures and other printed materials. They should also seek clarification when in doubt. One social media influencer even advised buyers to take video clips of showrooms to catch inconsistencies when verbal sales pitches do not match what is stated in print.

For properties in the primary market, keeping brochures. Leaflets and other marketing materials until the property is delivered is also advisable. These will serve as proof to validate any verbal agreement.

A common inquiry revolves around the likelihood of success in a court case, prompting the familiar question: What are the chances of winning? It is entirely reasonable for a client to seek a legal opinion regarding the probability of winning or losing a case, irrespective of whether they are the plaintiff or the defendant. Understandably, clients are hesitant to invest time and resources if there is a perceived lack of confidence in their chances of success.

In legal consultations, it is a common practice for lawyers to attribute a 50/50 chance to most cases, even when clients express unwavering confidence in the strength of their position. This equal probability assessment often perplexes clients, as they may believe that their version of events is unmistakably strong and should guarantee a 100% chance of success in their case.

It is entirely reasonable for a client to seek a legal opinion regarding the probability of winning or losing a case.

Approach with caution

So prior to making promises, what should one do? Number one would be to avoid explaining matters outside one's expertise and encourage the identification of any unclear terms or issues with clients. Real estate agents are urged to draft a formal contract that includes a dispute resolution procedure, potentially saving time and money in case of disagreements.

It is important to answer key questions: Have the parties concluded negotiations? Have they agreed on the essential terms of the bargain? Are the terms subjected to further agreements or the preparation of a formal agreement?

And it is important to reach a concluded agreement. While verbal agreements are legally binding under English law, the cost, stress and energy required to prove the terms of a verbal contract might outweigh its value. At the end of the day, investing time and money in a properly drafted contract gives you the surety that your agreement is enforceable.

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