Oral agreements, even without key terms, can be binding

Having nothing in writing does not mean there is no enforceable contract – the Supreme Court recently considered the question of terms in oral agreements and held that where the parties intended to create legal relations, the failure to expressly agree key terms does not mean that there is no enforceable contract. This case is a warning to those who think that they will be able to avoid liability because there is no written agreement.

Wells v Devani

The case of Wells v Devani looked at whether a property seller was bound to pay commission to an estate agent. During a telephone call, the estate agent confirmed that his commission was 2% plus VAT, but there was no discussion as to the circumstances in which the commission would be payable or certain other terms.

The seller instructed the estate agent to proceed. The estate agent subsequently introduced a purchaser to the seller, and the sale completed. The estate agent asked for his commission but the seller refused, arguing that they had never entered into a binding contract because the terms of any oral agreement were too uncertain.

The County Court found that a binding agreement was reached during the telephone conversation and that the estate agent was entitled to commission. The seller appealed and the Court of Appeal overturned the original decision, finding that the agreed terms were not sufficiently certain and that it was not possible to imply a term where, without that term, there was no contract.

However, the Supreme Court disagreed with the Court of Appeal. It found that in the circumstances of the case, the parties clearly intended to enter into a binding agreement. It concluded that they intended commission to be payable on a sale without expressly saying so, but said that, even without this conclusion, it would have been possible to imply such a term into the contract.

Oral agreements

We frequently come across cases where one party says “but we haven’t got a contract”. Whilst contracts are frequently concluded in writing, it is also commonplace for contracts to be concluded orally (with some exceptions – a contract for the sale of land must be in writing, for example).

In almost all commercial disputes we deal with, there is a binding contract, irrespective of whether it is in, or is evidenced in, writing. The uncertainly around oral agreements is generally not whether there is an agreement, but what the terms of that agreement are.

By nature, oral agreements tend not to cover all potential terms of a contract and, crucially, can be much harder to evidence. The parties’ recollection of what occurred during any given discussion tend to differ wildly. However, Wells v Devani makes it clear that a party cannot rely on the natural ambiguities arising from oral conversations to wriggle out of a liability when, in reality, there was a clear intention to enter into a binding agreement.

What should I do?

Best practice is always to ensure that any agreement is set out in full in writing, although we recognise this is difficult in the real world. But it is important to be aware that it is perfectly possible to enter into a binding agreement orally, whether in person or over the telephone, or indeed by other non-traditional methods (email, text message, or even through social media). It is a question of assessing and managing the risks. Take care when having such discussions and it is preferable (and probably significantly cheaper) to seek to resolve any ambiguity before, rather than after, the event. If you wish to avoid ’inadvertently’ entering into an oral agreement, it may be sensible to say that any conversations are subject to contract and that any agreement will only be effective when set out in writing.

The benefits of settlement

Wells v Devani also throws up an interesting point on the commercial considerations of litigation. The sale of the property in question took place in February 2008. The case was finally decided almost 11 years later. During this period the parties almost certainly spent many times the value of the claim, not to mention a significant period in their lives, engaged in litigation. It is likely that even though ultimately successful, the estate agent will still end up out of pocket.

We advise our clients to consider settlement at all times. Had the parties in Wells v Devani actively and reasonably engaged in settlement, it is likely that their dispute would have been resolved years ago.

If you would like more information, please contact Tom Williams at [email protected] or on 01905 744 802