Enforcing Verbal Agreements

Rosie Clark, Wade Pearson

May 2018 . . . When you make a big decision, like buying a house or a business, you should write down what everyone has agreed. Of course, sometimes things change and you need to alter what was originally agreed. Often this is not an issue, and both sides to a transaction simply get on with what needs to be done. However, problems can arise where the parties later disagree on the details of the change, or allege that a change was never actually agreed.

 

A recent High Court case highlights the downside of relying on verbal agreements to vary the terms of a written agreement.  

 

This case involved the sale and purchase of a commercial door importing and manufacturing business for approximately $5 million. With the help of lawyers and accountants, the parties negotiated what the judge described as a “comprehensive document” to record their agreement.

 

Problems arose after the sale, with the purchaser claiming it was owed over $400,000 by the vendor. The sale and purchase agreement made special provision for the treatment of ongoing sales, uncompleted business contracts and pre-payments. It contemplated that after settlement, various payments or credits would be dealt with in a wash up arrangement. The parties agreed that if they just looked at the sale and purchase agreement alone, the vendor was liable to pay the purchaser this amount. However, the vendor argued that the parties had verbally agreed to vary the terms of the agreement and according to that variation, the amount was not payable.

 

The key issue for the court to decide was whether the verbal variation claimed by the vendor had actually taken place. The judge accepted that an agreement can be verbally varied, but noted that it requires strong evidence to overturn the written words of an agreement.

 

The case ultimately turned on whose version of events was to be believed, based on all the evidence available. The judge found the vendor’s explanations to be evasive, inconsistent and unpersuasive. In contrast, the purchaser was consistent and emphatic, and had notes and other witnesses to confirm his version of events. The vendor had little to no written evidence to support his claims.

 

The judge also looked at some other key points. For example, the vendor’s claim implied that the purchaser would have invoiced, and been paid by, the vendor for certain work. The vendor did not provide any invoices, and could not explain why none were issued or paid. The vendor also claimed there was a witness present at a key meeting. This witness did not give evidence (in person or by sworn affidavit), casting further doubt on the vendor’s claim.

 

Crucially, the vendor claimed that the purchaser agreed to the change in position during a one minute phone call, one week before settlement. The judge was very sceptical of an experienced businessman, in those circumstances, agreeing to change a heavily negotiated position and give up such a large amount of money, for no real benefit.

 

Somewhat unsurprisingly, the judge was altogether unconvinced by the vendor’s claims, and ordered judgment in the purchaser’s favour.

 

Although this case depended on its facts, there is one key lesson in there. Even if you have a written agreement, ensure you keep good notes and records, especially if you are not quite sure about the other side. If someone claims you agreed to a variation, clear evidence will help you counter their arguments. If instead you are the one seeking to rely on a verbal variation, you will need strong evidence and corroboration. So it really is worth keeping good notes and where possible, confirming variations in writing.