‘Back of an envelope’ contract fails
Posted: 27th February 2019
Business dealings that are based on oral contracts are built on sand. The point was proved by a High Court case in which a high-value deal was alleged to have been struck during a chat in a restaurant, and recorded on the back of an envelope.
The case concerned a solar energy development which had hit a serious problem that threatened the entire project. An entrepreneur claimed that, during a restaurant meeting with a representative of the company behind the development, he had agreed to work on resolving the problem in return for 2% of the gross development value of the relevant site.
The oral agreement was not recorded in writing and the sole documentary evidence that it existed consisted of words handwritten by the entrepreneur on the back of an envelope at a subsequent meeting between the two men, again at a restaurant. The entrepreneur later claimed to have been instrumental in solving the problem and put in a bill for £534,000, based on a gross development value of £27 million. He launched proceedings after the company refused to pay.
Dismissing the entrepreneur’s claim, the Court had serious doubts about his veracity and reliability. Although he had painted himself as having played a pivotal role in the transaction, in truth, he had not. The words on the envelope did not support his claim that a binding agreement had been reached and, given that most of the work on resolving the problem had been performed by lawyers, not by him, the Court positively found that there had been no such agreement.