Many people think that to be valid a contract must be in writing and signed. That is simply not the case except for contracts involving the sale of property. An oral contract is just as legally binding as a written one.
What is important for a valid contract is that it contains all the key elements. These are firstly an intention to create a legally binding relationship, an offer and an acceptance of that offer, and consideration passing between the parties. Also essential is for the parties of the contract to have legal capacity and for the subject matter to be legal. If these are all present there is no need for the agreement to be evidenced in writing for it be legally binding.
The difficulty however with verbal agreements is that each party may have a different idea of what is being agreed. Even when this is not the case by the time a dispute arises memories will have faded of what was intended or possibly changed to fit the new circumstances.
It is then in the absence of anything in writing that arguments arise and it becomes a difficult (and often expensive) task to establish what had been agreed. There are therefore very clear advantages to documenting all but the very simplest of agreements if future problems and disagreement are to be avoided.
A court will always try to discover the intentions of the contracting parties using the plain, ordinary and popular meanings of the words used when the agreement was made. It is not for them to re-write the contract but, to use interpretation rules to determine the intentions of the parties at the moment of contract. So what are these interpretation rules?
Courts will sometimes imply a term into a contract based on a test of "necessity". In determining what is necessary, regard will be had to the nature of the contract and of the relationship which was established. They may also incorporate a business custom if one is certain and universally known except where the trade or commercial usage was unknown to one of the parties or contradicted by a specific term in the contract. Thus the court will imply a contract term that an employer has a duty of care towards an employee and that an employee should not betray confidential information or be required to carry out an illegal act.
The contract will be interpreted against the author when it is open to two different but equally probable interpretations, especially if there is a power imbalance between the parties.
What was said in pre-contract negotiations as evidence of what the parties intended when making the contract is, as a general rule, excluded. As has been said by the House of Lords 'statements in the course of pre-contractual negotiations will be drenched in subjectivity and may, if oral, be very much in dispute' The Court will therefore only consider the contract itself. In so doing it will interpret the language of the contract in the way a "...reasonable person having all the background knowledge which would have been available to the parties would have understood what was agreed".
Interpreting what was agreed after the event-often many years after- is a difficult uncertain and always expensive operation. It can only be sensible when agreeing something with someone to make a written note of what was agreed as evidence if things go wrong. There is no need for a written contract to be in any particular form. It just needs to record all the essential points of the agreement, be written in clear and unambiguous language without any contradictions and be signed by both parties.