Everyday individuals and companies enter contracts to achieve their objectives. Generally, contracts can be written, oral or by conduct. Although the law may require specific types of contracts to be in writing or executed in a particular way, there is no general requirement for contracts to be in writing. Many people often create oral contracts, or contracts that are partially oral and partially written. Reducing contracts into a single written document, however, promises several benefits which this article will explore.
When interpreting contracts, courts aim to give effect to what the parties intended. The best evidence of the parties’ intention is the language in the contract, giving the words used their natural and ordinary meaning. Therefore, when the contract is written, it is easier to ascertain what the parties intended. The rights and obligations that correspond to each contracting party will be more readily identifiable. If the parties are focused on performing the contract and a dispute arises, having a document that clarifies doubts as to who is supposed to do what, or that sets out the procedure to be employed in a particular situation, may help to ensure that the parties’ objectives are carried out and even facilitate the resolution of the dispute before the matter becomes litigious.
The parol evidence rule
Where the parties to a contract have reduced that contract to writing, the parol evidence rule prohibits either party from relying on oral and/or extrinsic evidence to contradict, add to, or vary the terms of that written contract. While there are exceptions to the rule, the general effect of the rule is that only the written contract will govern the contractual relationship between the parties. So, for example, if during negotiations an important contractual term is included in an e-mail but not in the final executed agreement, the party seeking to rely on the term in the email would first have to overcome the parol evidence rule. The rule promotes certainty of written contracts.
The limitation period is the period within which a party may sue. Limitation periods prevent defendants from having to deal with stale claims. In Jamaica, the limitation period to sue for a breach of contract is six years from the date of breach. Having timelines for the performance of contractual obligations carefully set out in a written contract will make it easier to identify when a breach has occurred and, accordingly, the deadline by which an innocent party must sue, if so inclined.
Envision a scenario where A and B enter an oral contract which stipulates that A will pay B $1 million for B to deliver a particular service by a particular time. After that deadline passes, A says the service has not been delivered and sues B for breach of contract, asking the court to order B either to deliver the service (specific performance) or pay A compensation (damages).
In his defence, B might say that he did not contract with A, that A gave him the money as a gift because they are friends, that he never intended to enter a legally binding contact with his friend, and that the terms of the purported contract are not as A alleges so that no breach could have occurred.
Because there is no written contract, A will not have the benefit of the parol evidence rule and the case will become a “he said, she said” scenario. To enforce the contract, A will have to testify and give evidence in relation to each of the contract’s terms. After completing that lengthy process, A will hope that the judge believes him over B and finds that, on a balance of probabilities, there is a contract and that its terms are as A alleges.
In contrast, if A and B had signed a written contract, then A’s lawyer would simply be seeking to have that document admitted into evidence at a trial, if a trial is still necessary. The written contract may make it possible to determine the matter without a trial, or have the trial take place sooner (because having the contractual terms contained in one written document makes substantial disputes of fact less likely). By having the contract in writing, A’s litigation could be both more efficient and cost effective.
In summary, although oral contracts often facilitate speedier business transactions, they are much more difficult to enforce. That difficulty arguably explains why many people prefer them. The benefits of reducing contracts to writing go beyond those discussed in this article and ought not to be taken for granted. Sincere parties with a genuine intention of performing the contract should not have a problem signing on the dotted line. The higher the value of the contract, the more advisable that it be reduced to writing. Seeking the assistance of a lawyer may help you ensure your interests are protected before execution and that, should a breach occur, you are in the best possible position.
Jacob Phillips is an associate at Myers, Fletcher & Gordon and is a member of the firm’s Litigation Department. Jacob may be contacted via Jacob.Phillips@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.