Is Your Oral Contract Enforceable?

The Supreme Court has overturned the decision of the Court of Appeal and found that an Oral Agreement between an Estate Agent and the Seller of a property was enforceable even though it did not expressly specify the event that triggered the Sellers obligation to pay commission to the Agent.

The case was called Wells vs. Devani. 

Mr Wells was a property developer and having developed a block of flats, he was finding them difficult to sell. He was introduced to Mr Devani.  Mr Devani was an Estate Agent and during the course of a telephone conversation, Mr Devani explained that his commission was 2% plus the VAT. Beyond those brief terms, no further discussion took place regarding the circumstances in which the 2% plus VAT would be charged or fall due.

Mr Devani introduced a purchaser to Mr Wells.  The purchaser went on to buy the flats at which stage Mr Wells refused to pay Mr Devani any commission. Mr Devani issued Court proceedings to recover his 2% plus VAT of the purchase price.

In the first instance, the Judge decided with Mr Devani by implying a term on payment. It was held that the commission should be paid.

The case was appealed and the Court of Appeal found for Mr Wells on the basis that there was an ‘incomplete bargain’ which resulted in there being no binding contract into which the term i.e. when payment was due, could be implied.

The case was moved to the Supreme Court.

The Supreme Court considered previous case law and commented 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. “

It was felt that the actions and words of the parties showed an intent and as a result there was no need to imply a term into such an Agreement which had been the route taken by the Judge in the first instance.  The Supreme Court continued that whilst the parties had not specifically discussed the exact trigger event that gave rise to the payment of commission, the natural understanding of the position was that payment would be due on completion.

The Supreme Court further considered that a term would only be implied where it was necessary to give a contract business efficacy or it would be so obvious that it colloquially went without saying.  As a result, the Supreme Court held that the obligation to pay commission on completion was all that was required to give the agreement between Wells and Devani business efficacy.

Each case is determined on its own specific set of circumstances.  In this particular matter, the Court finally held that there was no uncertainty in this particular situation.  Common sense prevailed. This does not however mean that every oral contract will now be binding.  The best is always to ensure your contract is in writing and the terms are clear.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk