Reached an agreement? Don’t forget to put it in writing or risk not being able to prove it later.
Contracts don’t necessarily have to be in writing to be legally binding. A verbal agreement reached over the phone or in person may amount to a binding contract provided certain criteria are met. However, failing to produce a written agreement can lead to a lack of clarity over which terms have actually been agreed and make it very difficult to enforce your rights in the event of a dispute. This can easily be overlooked. After all, having just reached an agreement, a falling out or dispute is not very often at the forefront of anybody’s mind.
The Court of Appeal has provided a timely reminder of this risk in the case of Keane v Sargen & Ors (judgment here). Mr Keane was a former banker who joined a legal services business founded by four solicitors. A draft agreement was produced that would, in effect, have granted Mr Keane a 20% ownership stake in the business. The agreement remained in draft and the discussions were never concluded. Around four years later, the relationship between the parties had deteriorated and Mr Keane left. Mr Keane was surprised when the Court of Appeal held that rather than owning 20% of the business as he believed, he in fact owned just 4.5% as there was “no evidence to support” the claim that he had become a partner in the business entitled to the greater share.
This case highlights the importance of recording all the terms of an agreement in writing, no matter how unlikely a dispute may seem at the time. Not only does it provide clarity between the parties as to what has been agreed, but should the relationship break down or a dispute arise, a written agreement can provide crucial evidence as to what was agreed. This is particularly the case as many disputes only arise several years after an agreement was reached, when key witnesses are no longer available and memories have faded. Failure to do so can result in an aggrieved party walking away with significantly less than they may otherwise expect.