Enforceable oral contracts – Supreme Court looks to conduct and context

To avoid expensive litigation, contracting parties should ensure that all essential terms are expressly agreed within a legally binding contract. Where some essential terms are missing, but the parties clearly intend to be bound by and act on their agreement, the court will be keen to find an enforceable agreement.

Wells v Devani 2019, UKSC 4

Facts

Mr Wells developed a block of flats, which he initially struggled to sell.  He mentioned this to a neighbour, who put him in contact with Mr Devani.  Wells and Devani spoke on the phone; Devani explained that he was an estate agent and that his commission would be 2% plus value added tax.  There was no discussion of the circumstances in which that commission would fall due.  Devani subsequently introduced a purchaser to Wells who bought the flats; however, Wells refused to pay Devani any commission.  As a result, Devani issued court proceedings.

At first instance, the judge found for Devani by implying a term on payment.

The Court of Appeal, finding for Wells, found that there was an "incomplete bargain" and that, therefore, there was no binding contract into which the term could be implied.

The case reached the Supreme Court.

Supreme Court explores circumstances of contract

Was there a binding contract?

The Supreme Court emphasised that:

"The courts are reluctant to find an agreement is too vague or uncertain to be enforced where it is found that the parties had the intention of being contractually bound and have acted on their agreement".

Wells and Devani's words and conduct were clear enough to show intention; there had been no need to imply a term into the agreement (as the judge at first instance had done).  Further, while the parties had not discussed the precise event that would trigger the payment of commission, it would have been naturally understood that the payment would be due on completion.

Implied terms

If it had been necessary to imply a term, the Supreme Court would not have hesitated to do so.  Applying its own decision in Marks & Spencer v BNP Paribas – that a term will be implied only where it is necessary to give a contract business efficacy or would be so obvious that it 'goes without saying' – the court held that the obligation to pay the commission on completion was all that was required to give the agreement between Devani and Wells business efficacy.  It would not go beyond what was necessary for that purpose.

There was no general rule that it was not possible to imply a term into an agreement to render it sufficiently certain or complete to constitute a binding contract.  It was possible to "imply something that is so obvious that it goes without saying into anything, including something the law regards as no more than an offer".

Context is key

In simple, frequently used contracts, such as some contracts of sale (the Supreme Court used the purchase of a broom from a door-to-door seller as an example), the context in which words are used and the conduct of the parties when the contract is made often tell as much, or even more, about the essential terms of the bargain than the words themselves.  The agreement between Wells and Devani was such a contract.

Expressly agree essential terms

The differing conclusions drawn by the three courts in these proceedings highlight the difficulties inherent in assessing contract formation and implied terms, especially where there is no written agreement.  Contracting parties should ensure that all essential terms are expressly agreed within a legally binding contract.  Nevertheless, where some essential terms are missing, but the parties clearly intend to be bound by and act on their agreement, this decision will provide some reassurance that the courts will be keen to find an enforceable agreement.

Click here for a copy of the Supreme Court judgment.