Tabloids put contract law in spotlight
Feb 9 2010 by Neil Warwick, The Journal
THE late, great Sam Goldwyn reportedly said that "verbal contracts are not worth the paper they are written on".
What constitutes a contract in English law has been keenly debated by the tabloid press as a result of “Terrygate”, which has exposed a couple of myths about contract law worth clarifying.
It has been alleged that a contract was entered into by a Miss Perroncel for the sum of £1 ensuring she would not discuss her relationship with former England football captain John Terry. To some, it seems absurd that anyone would draw up a contract to the tune of £1.
But contracts for the sum of £1 are common. To form a contract in English law, you require three elements – offer, acceptance and consideration. The offer is usually to sell something or to provide some services. Acceptance is the agreement to buy something or to procure the services. Consideration is the exchange of value which is usually a payment of some kind.
Essentially, if Miss Perroncel offered not to speak to anyone about her dealings with Mr Terry and Mr Terry’s advisors wrote this down on a piece of paper and both parties signed that piece of paper, there is a risk that a binding agreement had not been formed. The exchange of £1 is sufficient in English law to constitute the consideration element.
A presiding judge did not dispute that a binding contract between the parties existed. He did, however, infer that it may not have been the only dealings between the parties and the tabloids have been quick to speculate that a further payment may have been made to Miss Perroncel.
If this is true, why draft the original contract for the sum of £1? £1 would make it really binding but, say, £750,000 might demonstrate a little more substance to the allegations.
This case highlights a number of myths about contract law which are worth clarifying. These are:
Consideration is required under the laws of England and Wales for a contract to be binding.
Agreements do not need to be written to be binding under the laws of England and Wales.
Agreements certainly do not need to be written to be binding under EU law.
Neil Warwick is partner and head of Kudos, a specialist SME legal service, at Dickinson Dees LLP.
