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The Dangers of a Verbal Contract

Disputes

“A verbal contract isn’t worth the paper it is written on”

While this phrase has often been used to disparage the ability to prove the existence of a verbal contract, it also highlights one of the difficulties that can arise when a contract is entered into without being put in writing, even if all the parties agree that a contract exists.

Specifically a verbal contract is extremely unlikely to include a variety of terms and conditions that will be found in almost every professionally drafted contract. I will specifically discuss warranties, indemnities and dispute resolution clauses, though there are numerous others which might be relevant.

Warranties:

While in some cases legislation implies warranties into a contract for the supply of goods and services, these generally only apply if the price is less than a set amount, or the goods are not provided for re-supply. As such if you are buying a large piece of machinery, or equipment to be on-sold you will likely have limited recourse against the supplier unless a properly drafted warranty is in place.

Indemnities:

A well drafted indemnity clause takes into account the ability of each party to control the risk of any loss or damage and apportions the liability for that risk accordingly. If this has not been considered and put into writing you may find yourself open to liability over which you have limited or no control.

Dispute Resolution:

While we all hope that our contractual relations go smoothly, with a satisfactory outcome for everyone, the simple fact is that this does not always happen, just ask our litigation team. In such a case it is advantageous to have in place an agreed process for discussing and resolving any disputes, including requiring mediation. Without such your only option may be costly litigation where you could wind up having little or no say in the outcome.

These are, of course, only a small sample of matters which might not be covered in a verbal contract. Should you wish to discuss your contractual relations in further detail please feel free to contact one of our commercial solicitors on 9411 4466.