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CONTRACT FORMATION, INCOMPLETENESS AND IMPLIED TERMS

Lloyd's Maritime and Commercial Law Quarterly

CONTRACT FORMATION, INCOMPLETENESS AND IMPLIED TERMS

David McLauchlan *

This article discusses some issues in the law of contract formation that arise out of the judgments of the United Kingdom Supreme Court in Devani v Wells. These issues concern the relationship between “interpretation” and implication of terms, whether it is permissible to imply terms to prevent an alleged contract failing for incompleteness, and whether an agreement designating a term or terms as “to be agreed” may nevertheless be an immediately binding contract.

I. INTRODUCTION

The recent decision of the United Kingdom Supreme Court in Devani v Wells 1 raised issues concerning some basic aspects of the law of contract formation, indeed so basic that it is surprising that they should have required the attention of the country’s highest court. The facts, at least as found by the trial judge, could hardly have been simpler. In the course of a telephone conversation the respondent, Wells, the developer of a block of flats, appointed the appellant real estate agent, Devani, agent for the sale of seven flats that Wells had experienced difficulty in selling. Devani told Wells that his commission was 2% plus VAT but nothing was said as to when it was payable. Shortly afterwards, Devani did introduce a purchaser to whom a sale was completed but Wells refused to pay the commission of £42,000. Apart from disputing the facts as stated above, he defended Devani’s proceedings to recover that sum on two grounds. First, the agreement was not sufficiently complete to constitute a binding contract because it failed to specify the event that would trigger payment of the commission. Secondly, recovery should be denied because Devani had failed to comply with its obligations under the Estate Agents Act 1979, s.18. The latter argument was partially successful because the commission eventually recovered was reduced by one-third. However, this aspect of the case will not be considered further.
The trial judge found that the agreement was intended to be binding and that the alleged incompleteness could be cured through the implication of a term, necessary to give the agreement business efficacy, that the commission was payable on completion of a sale. However, the Court of Appeal by majority (Lewison and McCombe LJJ, Arden LJ dissenting) disagreed.2 Lewison LJ held that, since “the event giving rise to
Contract formation, incompleteness and implied terms

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