This article has been written by Puneet Singh pursuing a Diploma in International Contract Negotiation, Drafting and Enforcement course from LawSikho and edited by Shashwat Kaushik.

This article has been published by Shashwat Kaushik.

Introduction

The importance of treaties cannot be ignored; they have existed from the British colonial period up to the 21st century. The British traded with kings of various Indian states and executed a contract on a  copper plate (Tamrapatra) that contained the stamp of a particular dynasty. Today, business transactions take place in a verbal or documented form, “such as terms and conditions, services, privacy policies, master service agreements, etc.” The key question is whether an oral contract also has the same meaning as a written contract or whether it is only limited to a certain value of consideration. The purpose of this article is to compare written and oral contracts and determine the best fit for transactions.

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Essential elements of a contract

There are a few essential elements that need to be adhered to during the formulation of a verbal or written contract. These include:

Offer

To start a transaction, you need to use some form of communication, like an email, a sign in the supermarket, information from a telemarketer, terms and conditions on a website, or a pre-contract meeting. If you don’t do this, no contract will be formed or started, and it won’t be valid.

Acceptance

When one party receives information about the product, services and terms of that transaction and the other party gives their consent, this is called acceptance. For example, if A wants to sell his old cell phone via the Cashify application, he gives consent to sell the old cell phone at the offered price.

Legal validity

The legal validity of a contract is important. If a transaction is to be valid, a contract between the parties must be formed. A few parameters determine legal validity, for example, both parties should not be of unsound mind, consent of both parties should be given without undue influence or coercion and the contract should be legally binding to both parties. 

Consideration

A contract is enforceable only with adequate consideration. Consideration is the price paid for a promise. It may be something of value, such as money, property, or services. It can also be something that is not monetary, such as a promise to do something or to refrain from doing something.

In some cases, consideration does not have to be monetary. For example, a father may promise to give his son Rs 1 lakh on his birthday because of natural love and affection. This promise is not enforceable because there is no consideration. However, if the father puts the promise in writing and registers it, the promise becomes enforceable because it now has consideration. The registration of the promise gives it legal value.

Another example of consideration that does not have monetary value is a promise to forbear from doing something. For example, a person may promise not to sue another person in exchange for that person’s promise to pay a certain amount of money. This promise is enforceable because it is supported by consideration.

Types of contract

Express contract 

An express contract occurs when parties have a clear understanding and are fully aware of the terms and conditions involved, and there is a deliberate exchange of promises between them. This type of contract is contrasted with an implied contract, which is one that is not explicitly stated but is inferred from the actions of the parties involved.

Express contracts can be written or oral. A written contract is one that is set down in a document, while an oral contract is one that is made verbally. In either case, the terms of the contract must be clear and unambiguous so that both parties understand what they are agreeing to.

There are a number of different elements that are essential to an express contract. These include:

  • Offer: One party must make an offer to the other party.
  • Acceptance: The other party must accept the offer.
  • Consideration: Each party must give something of value in exchange for the other party’s promise.
  • Intent: Both parties must intend to create a legally binding contract.

If all of these elements are present, then an express contract is formed. It is important to note that even if a contract is not in writing, it can still be enforceable by the courts. However, it is always best to have a written contract, as this can help to avoid any disputes down the road.

Express contracts are used in a number of situations, for example:

  • Buying or selling a house
  • Entering into a lease agreement
  • Hiring an employee
  • Getting a loan from a bank
  • Starting a business

By understanding the basics of express contracts, you can protect yourself and ensure that you are entering into legally binding agreements that are in your best interests.

Implied contract

It cannot be expressed in an oral or written form; e.g., during the adoption ceremony of a child, the consent of the adoptive mother is obligatory. However, in this case, the adoptive mother did not explicitly consent ‘yes’ or ‘no’ to the adoption. This is considered an implied contract.

E-contract

When a contract is formed through electronic means, such as email or telephone, terms and conditions may appear as pop-ups when opening or executing any page online. These terms and conditions address matters such as age restrictions and the services offered by the online platform, constituting a form of electronic contract.

Quasi contract 

A contract that is formed by virtue of law; for example, if you have ordered some ration stock from Instamart and a delivery boy has delivered it to another address, in this case, the delivery boy, bound by the quasi-contract, will have to deliver the correct address.

Comparison between oral and written contracts 

Nature

The most crucial aspect of a written contract is its tangible nature, which facilitates ease of reading and correction in case of any discrepancies in execution. Oral contracts, on the other hand, are intangible in nature. For instance, in a group discussion between the parties, conclusions are reached without any written proof. This can be an obstacle in future deals if some terms are not clear. 

Oral contracts are memory-based, so if there is a breach of any transaction, the resolution will also depend on the memory of the communicator and the medium used for communication, such as e-mail, voice mail, written notes,etc.,. or any other electronic form of communication to decide a dispute. This dependence on memory and varied communication mediums can contribute to disputes. In contrast with a written contract, a skilled professional can promptly clarify the issues for both parties related to a clause and rectify the problem. Once the entire process is completed, a final draft will be prepared, and both parties will express their consent by signing it. Once a contract is notarized and signed, neither party can repudiate it or claim it is false, as may be the case with an oral contract.”

Enforceability

The agreement is valid if it contains the essential elements of the contract, such as an offer, acceptance, consideration, competent parties and free consent. If any of these elements are missing from an oral or written agreement, it is deemed invalid in the eyes of the law. Therefore, it is easier to prove the terms of a written agreement. Conversely, proving the enforceability of an oral agreement is challenging, depending on the judge’s discretion, and it is also more challenging to prove as the terms rely on the parties’ memories. During a courtroom hearing, documentary evidence is preferred over verbal evidence, giving a written contract evidentiary value. An oral agreement is equally valid as a written one; the legality of an oral agreement cannot be questioned if it falls under the ambit of requirements stated in Section 10 of the Indian Contract Act of 1872.

Limitation

A verbal contract is easy to evaluate when there are few terms and conditions. However, as the number of clauses in the contract increases, it becomes challenging for the parties to remember every detail. In such circumstances, a written contract is preferable to a verbal contract.

In a written contract, if one of the parties breaches the agreed-upon terms, a reminder can be sent to prompt the other party to fulfil their obligations. In contrast with an oral contract, if a party breaches any condition of an agreement, then there may be a risk of fraud without any proof. For instance, Company A has a verbal contract with Wholesaler B, wherein Company A is to provide a stock of 10 million rupees with the condition of replenishing the stock if the retailer orders 70% of the stock from the wholesaler in a given month. The following month, the wholesaler placed an order for replenishment, but Company A refused, stating that 80% of the products were not sold in the previous month, as per the oral agreement. In this scenario, the wholesaler cannot easily prove that the 70% sales requirement for stock replenishment is due to the limitations of the oral agreement. 

Why do parties prefer written contracts to oral contracts

Reliability

The business transaction takes place in documented form and creates trust between the contracting parties. Secondly, when an agreement is made between two unknown multinational companies, both parties are assured that all transactions will be carried out according to the clauses set out in the agreement; if they are not followed, it is legally called a breach of contract. Therefore, a written contract builds mutual trust between the companies or parties and builds further mutual belief.

Review

The verbal contract is memory-based, so a review of contract clauses is possible to a certain extent, but in the case of a written agreement, the review of every clause is possible in-depth, if a clause is missing from the contract, it can be added after discussion with the parties.

Execution time

Whenever a contract is established, the timing for its execution is typically agreed upon by both parties. The written contract clearly states the deadline for completing the transaction; failure to meet this deadline constitutes a breach of contract, against which the aggrieved party can take legal action. However, it is very difficult to prove the date of execution in an oral contract. For example, if a small manufacturer has made the payment for the cotton supplier and the supplier has promised to deliver it within one week, but if the supplier refuses to deliver the material, then how will the manufacturer prove that material will be supplied within a week.

Arbitration of dispute

If any dispute arises between the parties, then there is always an arbitration or dispute resolution clause present in the written contract so that a solution can be found before the breach of contract occurs. Vice versa, there is no such discussion in the oral agreement that if any dispute arises, it will be resolved by both parties. That’s why, due to the dispute resolving clause in the written contract, one gets the privilege over the oral contract.

Conclusion

The need for an oral or written contract is appropriate at their respective places, but if we talk about safety and trust, then a written contract would be a better option. It is appropriate to make an oral contract where the consideration amount is much less, like Rs 1000, whereas it is appropriate to make a written contract where the amount of consideration is very high. A written contract provides an opportunity before it takes final form where parties can decide, after reviewing all the statements of the contract, whether everything aligns with their discussion. If parties have to do any transaction, commercial deal, or daily business transaction, then, in the true sense, a written contract is a better choice than an oral contract. There are many reasons for this. A written contract is a better choice than an oral contract because it is more enforceable, provides a clear record of the agreement, and can help to avoid disputes.

Firstly, written contracts are more enforceable than oral contracts. If there is a dispute over the terms of an oral contract, it can be difficult to prove what was agreed upon. A written contract, on the other hand, provides a clear record of the agreement, which makes it easier to enforce.

Secondly, written contracts can help to avoid disputes. When both parties sign a written contract, they are agreeing to the terms of the agreement. This can help to prevent misunderstandings and disagreements down the road.

Of course, there are some exceptions to the rule. In some cases, an oral contract may be enforceable, such as when the contract is for a small amount of money or when it is made in the presence of witnesses. However, in general, a written contract is the best way to protect your rights and interests.

References

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