A nod and a handshake

Our last construction newsletter featured a case that highlighted the fact that the courts will honour a variation to a contract, even if it was only a verbal agreement.

The case in question was Globe Motors v TRW Lucas Verity Electric Steering, in which the court of appeal said that a contract could be varied by a spoken agreement, even though - in this case - there was a clause in the written contract stating that any variation must be in writing in order to be effective.  

Hot on the heels of that case is a further decision by the Court of Appeal in MWB Business Exchange Centres Ltd v Rock Advertising Ltd. Just like the Globe Motors case, it was decided that a clause requiring any amendment to be made in writing does not protect   a contract from being varied verbally.

It should be remembered, however, that for an oral variation to be effective, all of the constituent parts needed to form a contract must be present. This means the parties must have the intention to form a new contract and must reach agreement. Furthermore, there must be some form of consideration for the variation. If these elements exist then the oral variation will be effective.

The consideration provided for the variation must be new. For example, part-payment of a sum already due is not normally considered good consideration. In the context of construction contracts, a verbal agreement to carry out a variation and to be paid for doing so, would be good consideration from both parties. 

Despite this, there are certain types of contract that cannot be altered verbally because the law says they have to be in writing. The most usual examples are contracts for an interest in land and contracts of guarantee. 

This amounts to quite a change in the law of contract and is likely to lead to some uncertainty over terms. If you have questions, please get in touch with Peter Allen on 01245 453813.