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In the creative industry, you may have frequently found yourself engaged by clients on what is known as a “verbal contract”. Under such a verbal contract, you may be providing architecture drawings or interior design services and your client has agreed to pay.
The good news is that, provided certain requirements are met, this verbal agreement is binding – you will be expected to perform those services and your client will be expected to pay.
However, all other remaining terms and conditions crucial to your services are at best loose, ambiguous and, most importantly, not in writing.
What happens if something goes astray?
This is a scenario that many of my clients have brought to my firm, and most if not all are surprised to learn that termination of a verbal contract is not so simple of a process regardless of the circumstances.
The most important thing to keep in mind when approaching all contracts, verbal or not, is the age-old rule that a contract between two parties is formed when there is offer made, someone accepts that offer and something of value passes between the parties (what we call ‘consideration’).
What happens if you want to terminate your service engagement when there is nothing in writing between you and your client?
If such a contract is afoot, if one party was able to easily and readily terminate the contract, this can cause significant loss or damage to the other party (even if merely in the form of delays). In fact, if this occurs, the terminating party may end up being liable for the loss or damage to the other party.
For this reason, and in the interest of fairness between the parties, the law restricts the circumstances under which one can terminate. Even where, for example, your client is impolite and rude, whilst this may appear to provide you with a straightforward way out, the reality is very different.
This is especially true if you are in the middle of providing your services to the client and without a written contract or Terms and Conditions which may provide you with an explicit right to terminate if your client is disrespectful.
So how do I actually terminate the verbal agreement?
In other words, without a formal contract on foot, the law will have to “fill in” the absence of a written contract and determine by the principles of “common law” of whether you can terminate the contract or not.
The circumstances under which you can terminate under common law are limited, being namely:
One party has ‘repudiated’ the contract, that is, that party has renounced their obligations under the contract;
One party has breached an essential term (i.e. a key requirement, also known as a condition) of the contract; and
There has been a serious breach of an intermediate term (i.e. something between an essential term and a non-essential term) of the contract.
Without getting into too much detail of the law, the common law essentially requires something very serious to occur for you to put your working relationship to an end.
This is particularly a precarious situation for you and your business as, in the absence of a written contract, there are no fixed rules as to when you can or cannot terminate.
I don’t really understand - why does common law operate like this?
Coming back to example of a rude client – at the end of the day it may be considered a mere argument. Whether or not it is grounds for termination of the verbal contract is akin to asking how long a piece of string is.
For example, if the client was swearing, were they swearing profusely? Were they shouting and physically aggressive or using physical acts of intimidation? Was this a once-off occurrence or is this a frequent pattern of behaviour? Have they engaged in harassment or abuse? Have they threatened you? Are they communicating rudely through other mediums such as emails and text messages?
As you may begin to appreciate, it is highly difficult to determine the exact point at which client conduct is serious enough for you to terminate the agreement unilaterally.
So where does that leave you?
The key and overarching take away is that there are few businesses offering services, creative or otherwise, that can afford to be without a comprehensive set of Terms and Conditions.
Whilst many people do not consider all scenarios at the outset, from a legal perspective, it is extremely important for you to consider your own values and how you want to run your business. This may include matters such as how you want to be spoken to and other various codes of conduct, which can be captured and cemented in a written agreement between you and your client. Not only does this protect your business but will provide you with some level of peace of mind.
Ultimately, the more you put in writing, the more certainty there is. Sometimes, more is really more!
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