1. Introduction

In commercial practice, parties frequently begin performance before any written agreement is signed. Terms are settled by conversation, work proceeds on trust, and the paperwork is left for later or never prepared at all. Difficulty arises when the relationship breaks down and one party seeks payment for work already done, with nothing in writing to rely on.

A common assumption is that an agreement is not binding unless it is written and signed. Under Cyprus law that is not the position. A verbal contract can be legally binding, subject to certain exceptions. The question is rarely whether an oral agreement is capable of binding the parties; it is whether its existence and terms can be proved to the standard a court requires.

This guide sets out the general requirements for a binding contract, explains what is distinctive about verbal contracts, and outlines the remedies that may be available where such agreements are breached or cannot be established.

2. The General Requirements for a Binding Contract

The requirements in this section apply to every contract, whether written, oral, or a combination of the two. They are governed by the Contracts Law, Cap. 149 (the “Law”).

Section 10 provides that contracts are agreements made with the free consent of parties competent to contract, for lawful consideration and a lawful object, and which are not expressly declared void by the Law. Subject to the provisions of the Law, a contract may be made in writing, orally, partly in each, or inferred from the conduct of the parties. A contractual agreement ordinarily requires a sufficiently definite offer and a corresponding acceptance, supported by consideration, while enforceability remains subject to the other requirements of Cap. 149, including, inter alia, the parties' capacity to contract, free consent, a lawful object and lawful consideration, and the requirement that the agreement is not otherwise void under the Law.

Beyond these, the parties must intend to create legal relations. Consideration alone does not produce a binding contract where that intention is absent, and its absence may be shown either expressly or by implication.

The parties' words and conduct must objectively disclose agreement on the essential terms, and those terms must be sufficiently certain. Whether an agreement has been concluded is judged not by the parties' private intentions but by the reasonable impression their words and conduct convey, and the court is the sole judge of whether a contractual relationship exists. Section 29 provides that an agreement whose meaning is not certain, and cannot be made certain, is void. The terms of a contract are fixed by the parties themselves, an expression of the freedom to contract, and it is not the function of the court to complete an incomplete bargain; the court will, however, interpret the words the parties used in order to ascertain their meaning. The test of certainty is whether a person genuinely seeking to discover the meaning of the agreement is able to do so.

Where a binding contract is breached, section 73(1) entitles the innocent party to compensation for loss arising naturally from the breach, or within the parties' contemplation when contracting; remote or indirect loss is not recoverable.

3. Verbal Contracts: Validity and Proof

Because Cyprus law imposes no general requirement of writing, a verbal contract that satisfies the requirements above may be valid and enforceable. Three qualifications matter in practice.

First, validity is subject to exceptions. Section 10 is itself expressed to operate subject to the provisions of the Law, and section 10(2) preserves statutory requirements that particular contracts be made in writing, witnessed or registered. Where such a requirement applies, an oral agreement will not suffice, so the general rule that oral contracts are enforceable is not absolute. Examples include leases of immovable property for more than one year, which must be in writing and witnessed, and certain agreements without consideration, which are enforceable only if the particular formalities prescribed by section 25 are satisfied.

Second, the principal difficulty is evidential. The party asserting an oral contract bears the burden of proving both that an agreement was concluded and what its terms were. Where the agreement itself was not recorded in writing, this may depend on witness evidence together with the documents and conduct surrounding the parties' relationship.

Relevant evidence may include emails, messages, letters or other communications referring to the arrangement; invoices, receipts, account statements or other records consistent with its terms; deposits, part-payments or other payments made pursuant to it; the delivery or acceptance of goods or services; steps taken by either party in performance of the arrangement; and any subsequent acknowledgment or admission of what was agreed. The parties' conduct before and after the alleged agreement may therefore provide important objective evidence of both its existence and its terms.

Third, an informal understanding may fall short of a binding agreement. Where the parties make their arrangement conditional upon the conclusion of a later formal contract, commonly described as being "subject to contract", this may indicate that they did not intend to become legally bound until that further agreement was concluded. The position will depend on the words used and the surrounding circumstances.

Accordingly, the absence of a written contract does not, by itself, prevent enforcement. Where the evidence establishes the necessary intention to create legal relations and sufficiently certain essential terms, an oral agreement may be recognised as binding and enforced according to its terms, subject to any applicable statutory requirements.

4. Recovering Payment and Other Remedies

Where a verbal contract is established, the ordinary remedies for breach of contract may apply. Under section 73(1), a party may recover losses that arise naturally from the breach, as well as losses that the parties could reasonably have contemplated when the contract was made. In assessing such loss, section 73(3) also requires account to be taken of the means available to mitigate the consequences of non-performance.

Other contractual remedies may be relevant depending on the terms of the agreement and the nature of the breach. Where the contract specifies a sum payable upon breach or contains a penalty provision, section 74 allows the innocent party to recover reasonable compensation, not exceeding the amount specified or the penalty stipulated. Section 75 further entitles a person who lawfully rescinds a contract to compensation for loss suffered as a result of its non-performance.

Where services were expressly requested and provided, but no remuneration was agreed, the request may also imply an obligation to pay reasonable remuneration.

Where no enforceable contractual obligation can be established, Cyprus law may nevertheless provide other bases of recovery, including restitution based on the principles of unjust enrichment. Section 70 provides that where a person lawfully does something for another, or delivers something to another, without intending to act gratuitously, and the other person enjoys the resulting benefit, the recipient is required to compensate the provider or restore what was received. Four conditions must therefore be satisfied: the act was done lawfully; it was done for another person; the claimant did not intend to act gratuitously; and the defendant enjoyed the resulting benefit.

The appropriate remedy therefore depends on whether a binding verbal contract can be established, the terms that can be proved, the nature of any breach and, where contractual enforcement is unavailable, the circumstances in which any benefit, services or property were provided.

5. Our Firm's Assistance

At Economou & Co LLC, we assist clients with litigation and disputes arising from verbal and informally documented agreements, including claims for payment and disputes over whether a binding contract was formed and on what terms.