KembaraXtra - Legal Terms - Simple Contract (Parol Contract)

A simple contract, also known historically as a parol contract, is any contract that is not executed as a deed. It represents the overwhelming majority of everyday commercial and personal agreements, ranging from retail purchases and employment contracts to service agreements and business transactions. Unlike deeds, simple contracts generally require the essential elements of offer, acceptance, consideration, intention to create legal relations, and contractual certainty before becoming legally enforceable.

The historical expression “parol contract” originally referred to agreements made orally rather than by sealed instrument. Modern law, however, recognizes that simple contracts may be either oral or written. The defining characteristic is not the form of communication but rather the absence of execution as a deed. Consequently, a detailed written commercial agreement signed by both parties may still be a simple contract if it has not been executed according to the formal requirements applicable to deeds.

A distinguishing feature of a simple contract is the requirement for consideration. Each party must ordinarily provide something of legal value in exchange for the other’s promise. This requirement contrasts with deeds, which may be enforceable even without consideration because their formal execution substitutes for the evidential and cautionary functions otherwise served by consideration.

Simple contracts are subject to fewer formalities than deeds, making them highly flexible and suitable for modern commercial life. Most contracts can be formed without any particular formal procedure unless legislation requires writing or other formalities for specific transactions, such as contracts concerning interests in land or consumer credit agreements. This flexibility facilitates rapid commercial dealings while preserving enforceability through ordinary contractual principles.

The limitation period for enforcing a simple contract also differs from that applicable to deeds. Under the Limitation Act 1980, actions founded upon simple contracts must generally be commenced within six years from the date on which the cause of action accrued. By contrast, actions upon deeds typically enjoy a longer limitation period, reflecting their greater formality and legal significance.

Simple contracts therefore constitute the foundation of modern contract law. Their relative informality, combined with well-developed legal principles governing formation, interpretation, performance, breach, and remedies, enables individuals and businesses to conduct the vast majority of their legal and commercial affairs efficiently without resorting to the more formal mechanism of execution by deed.