Oral Contract in International Business Transactions: Specificities and Complexities of Enforcement essay

Introduction

Despite the prevalence of oral contracts in civil legislation, there is no special attention to their studying. The essence and specifics of the oral contract are poorly described in legal literature. Therefore, in practice, not only citizens, but also experts quite often experience difficulties with assessment of the admissibility of the use of the oral contract in some particular situation. Following from this, the main goal of the future dissertation is to discuss specificities and complexities of the enforcement of oral contract in international business transactions. The dissertation will touch upon the division of contracts into oral and written and will state that the oral form is opposed to the written one. Moreover, the dissertation will continue discussing the legislature of the majority of world countries, which do not have such a concept as an oral form of the contract and do not give its definition, indicating only transactions made orally.

Literature Review

The emergence of the written contract is usually preceded by the oral agreement of the parties about the opportunity and need for the conclusion of the contract under definite conditions. Then, this agreement is proved by the written form of the document. Thus, the process of commission of the written transaction proceeds in two stages: the first one deals with achievement of the oral arrangement by the parties concerning a transaction under certain conditions; the second one implies registration of this agreement by means of the document expressing its contents. When the former is made and signed, the written transaction is considered to be completed and comes into effect.

 

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The contract can be signed both orally and in a written form if the current legislation does not provide an obligatory form of the contract. If an oral agreement is achieved by a mutual exchange of wills and the parties of the contract want to attach legal significance to it, the contract is signed orally. The law does not establish an oral form to be obligatory for any agreement. The problem of oral contracts consists in the difficulty to prove them. The written contract strengthens the position of the oral one.

Oral contract is a special type of the international agreement signed in the simplified order and characterized by the absence of the written text. However, such contract testifies to a high degree of trust between contractors. It is considered in the light of the main conventional principle of the international law, i.e. the principle of the conscientious implementation of obligations “pacta suntser-vanda”. Oral contract is the form of a treaty or agreement in the international practice achieved in an oral form. In the international law, there are no obligations for oral contracts to have the same validity as the written ones. Owing to their character, oral contracts usually concern one-two specific questions of the prime importance.

Unlike the written contract, an oral one is considered to be completed and comes into effect at the moment of the achievement of the oral agreement concerning its conclusion under definite conditions by the parties. Thus, oral contracts combine both achievement of the agreement on the transaction and its registration. Oral contract is concluded verbally in the course of conversation. Thus, an oral contract includes transactions, which do not have a documental basis, but are directed at the establishment, change, and termination of civil rights and duties. Besides, an oral contract can be concluded both at a personal meeting and in the process of communication of the parties and via the use of special communicative means for this purpose (phone, Skype, etc.). Oral contracts also include agreements between people with limited abilities (disabled people) made by means of the sign language, tactile (manual) alphabet, or other means perceived by them not aurally, but visually or in a tactile way.

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Another feature of an oral contract is that it is directly perceived by the parties only at the time of its conclusion; third parties can directly apprehend an oral contract only if they are present at its conclusion. Reproduction of an oral contract by means of repeated pronunciation of its conditions by the parties or third parties does not serve its direct perception by them, but can confirm the fact of its conclusion under certain conditions. Thus, if the parties of an oral contract reproduce it in writing, having made the document expressing its contents with signature, the other form of the contract, i.e. the written one, will appear.

Unconditional existence of the necessary power of the sides is the main condition for the conclusion of the oral contract. The achieved oral contract can be further reflected in the joint communique, following the results of negotiations or in messages of the parties for the mass media. Deviation from an oral contract is considered to be a serious violation of the norms of the international communication and can sharply undermine trust of the parties to each other. In many cases, oral contracts lead to the conclusion of more definite and profound documents between the parties like agreements, contracts, and protocols.

A special value is acquired by the audio recording containing agreement of the parties on the conclusion of the oral contract under certain conditions. The audio recording is not able to change the document and, therefore, is not an analogue of the written form of agreement. However, audio recording is the only proof of the oral contract, corresponding to its specifics and the most exact way of its fixation. Therefore, the purpose of an audio recording consists in informing interested people on the conclusion of oral contracts most precisely and authentically; it also serves as the proof at dispute emergence. Video recording of oral contracts has the same importance as audio recording. However, there is no necessity in the proof of the oral contract by means of fixation of audio or video recording.

The practice of oral contracts has become widely adopted by the world of business. A strict observance of such contracts is a point of honor for contracting parties. Thus, there is a question of the proof of the existence of oral contracts, but the damage of business reputation of a violator is undoubted. Such violations are especially strictly pursued by the law in the USA, England, Germany, and other European countries. At the same time, in many countries of the East and Africa in business practice it is preferable to record the contract in the written form. Thus, oral contracts have the same juridical power as the written ones, but need the following written support. Moreover, the oral contract is also possible if the legislature of the country does not fix its conclusion in the written form. Therefore, not every contract can be concluded orally and admissibility of an oral contract is determined by a residual sign if the law or agreement of the parties does not establish a written form. However, the United Nations Commission on International Trade Law (UNCITRAL) in the article 29(2) states that “the existence in the written contract of what are referred to under common law systems as “No Oral Modification” clauses (NOM clauses), which do not allow for the modification of the contract unless that modification is made in writing” (Viscasillas, 2004, p. 169).

The history of international relations gives a number of examples of the conclusion of oral contracts like the oral agreement of the USSR and the Mongolian National Republic of November 27, 1934, about mutual support in case of the threat of a military attack and in case of attacks of the sides of the oral contract by any third state (it received a written proof in the bilateral Protocol signed on March 12, 1936); oral contracts concluded by Italy and England in Rome on January 2, 1937, concerning the status quo of the Mediterranean region and recognition of the legitimacy of Italian actions in Spain and Ethiopia;  the London oral contract of the states - permanent members of the UN Security Council, including the USSR, Great Britain, China, the USA, and France, concerning observance of the principle of fair geographical representatives when electing permanent members from the East European, West European, Latin American, Asian, and African regions in 1946 (Reisler & Perry, 2012).  

The Austrian contract law is based on the principle of contractual freedom. Therefore, contracting parties can freely govern contractual relations if contract provisions do not contradict the current legislature. The contract is understood as the coordinated will about offer and acceptance. According to the Austrian law of contracts, oral contracts have the same validity as the written ones. The same contract policy is applied in African countries. Thus, the contract law of Nigeria presupposes existence of an oral contract and implies its oral acceptance, but with a consequent written proof (Alewo, 2012, p. 124).

Conclusion

The analysis of contractual practice gives the grounds for the conclusion about existence of two kinds of contracts in an oral form. The first one includes the agreement not fixed in any documents. The second one includes the agreement formulated and concluded orally, but at the same time recorded in some documents. All contents, either a basic position or the fact of conclusion of oral contracts on a certain question should be fixed. Joint statements and communique are the most authoritative forms of fixation of oral contracts.

Oral contracts can be recorded in the protocol of negotiations signed by secretaries of delegations. They can be fixed by means of a sound recording sometimes in parallel with film and tele-recording. Sound recording should be carried out by the agreement of the parties and each of them should receive a copy. Sound recording carried out by only one of the parties cannot be considered as an official form of the contract. Thus, the main advantage of the oral contract consists in obvious simplicity of the process of its conclusion.